Version 2.0 
Written by: Dr. Michael R. Muller - Director, Don Kasten

©2006 Rutgers, the State University of New Jersey

Table of Contents
INTRODUCTION ..............................................................................2 PRODUCTIVITY TOOLBOX ..............................................................5 Toolbox Introduction.....................................................................6 Productivity Metrics......................................................................9 Cost of Labor..............................................................................10 Space Optimization .......................................................................11 Productivity Questions...................................................................14 CONCEPTS FOR PRODUCTIVITY ENHANCEMENT, PART I INCREASING PIECES/PERSON/HOUR .............................................19 QUICK CHANGES......................................................................20 AR No. 1 Decrease Die Change-Out & Start-Up Times...................26 AR No. 2 Use Fixtures to Reduce Lathe Set-up Times....................32 AR No. 3 Install a Rotating Nozzle Carousel to Reduce Set-Up Times.34 AR No. 4 Employ Modular Jigs to Reduce Process Set-up Times.......36 BOTTLENECK MITIGATION.........................................................39 AR No. 5 Add Machine Operators to Reduce Production Bottleneck....41 AR No. 6 Install Refrigeration System to Cool Product...................45 AR No. 7 Replace Old Lathe With New Automatic Multi-station Tool..47 DEFECT REDUCTION .................................................................49 AR No. 8 Reduce Defects By Reducing Bottle Tipping...................53 AR No. 9 Develop Standard Procedures to Improve Internal Yields ....63 PREVENTIVE PREDICTIVE MAINTENANCE ....................................67 AR No. 10 Eliminate Shutdowns of Controls Due To Overheating ......69 AR No. 11 Begin a Predictive/Preventive Maintenance Program.........73 LABOR OPTIMIZATION...............................................................79 AR No. 12 Install Automated Glassware Packing Equipment.............81 AR No. 13 Install Magazines Between Machines to Reduce Costs.......87 AR No. 14 Cross-Train Existing Personnel to Avoid Lost Time .........90 CONCEPTS FOR PRODUCTIVITY ENHANCEMENT, PART II DECREASING COST/PIECE ..............................................................93 SCHEDULING ...........................................................................94 AR No. 15 Optimize Lot Sizes to Reduce Inventory Carrying Costs.....97 AR No. 16 Add a Second Production Shift..................................99 PURCHASING...........................................................................101 AR No. 17 Schedule Wood Chip Deliveries According to Demand......103 AR No. 18 Purchase Materials from Supplier in Customized Packing...105 AR No. 19 Install Pellet Silo and Receive Bulk Delivery Discount.......107 BURDEN ANALYSIS...................................................................109 AR No. 20 Condense Operation Into One Building ........................111 AR No. 21 Demolish Building to Reduce Tax & Insurance Fees.........114 INVENTORY .............................................................................117 AR No. 22 Eliminate Old Stock and Modify Inventory Control ..........120 FLOOR LAYOUT ........................................................................127 AR No. 23 Clear and Rent an Existing Warehouse.........................129 AR No. 24 Re-arrange Equipment Layout to Reduce Labor Costs.......131 AR No. 25 Re-arrange Equipment Layout to Reduce Handling Costs...134

Background As part of the Climatewise program, Professor Muller and other technical staff of the OIPEA have been involved with adding an energy and waste component to the PICOS supplier development program run by General Motors. As part of these activities, the GM people observed an IAC style assessment in New Jersey. Professor Muller then spent a week in Charlotte observing a PICOS assessment. During this information exchange it became clear that IAC assessments could be more effective if additional efforts were put into direct productivity issues. Recognizing that we have had training courses for center directors on energy and waste, it was concluded that an additional course should be assembled on productivity.

Evaluation of the GM PICOS™ Assessment Program The PICOS program is a long running industrial assessment service provided by GM for their suppliers based carefully on the Toyota Production System. The goal of the program is to improve the productivity of suppliers and pass the savings on to GM, which has a policy of continually paying less for a product each year. They are proud that they never tolerate price increases. The workshops, as they are called, use a team of normally two Supplier Development Engineers who are in the plant for 3.5 days. These are people with a variety of backgrounds and for the most part are not engineers. They make some suggestions themselves, but rely mostly on working groups of plant personnel to come up with cost saving ideas. Implementation of good ideas is expected to be immediate. Layout changes, for example, are often accomplished while the PICOS team is still there. Until recently, staff in the PICOS program did not concern themselves with waste or energy, but focused entirely on productivity issues. We can learn a great deal from the general approaches they use, but proprietary concerns will prohibit us from adopting any of their practices directly.


Additionally.Goals and Extent of the training program We hope to provide some background material. but concentrate on a number of worked examples of various kinds of productivity recommendations. by showing the large impact of some of these recommendations. it is hoped that director's themselves will be motivated to develop their own novel tools and fixes. 3 . The goal of the training is to provide directors with several tools which they can apply directly.

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Floor Layout c. Profit - 6 . Burden/overhead e. In our presentation we further break these categories down to help you identify the major concepts which allow the creation of Assessment Recommendations. (Sales Price/Piece) minus (Cost/Piece) 4. unskilled union Skilled non-union. Cost Per Piece 5. Cost of Inventory Carrying Cost Cost of Raw Material 3. unskilled non-union Also like to know Fringe Cost of Labor. Usually these can be thought of as the costs or values of those things which go to make up Cost/Piece or Pieces/Person/Hour. Increases Pieces/Person/Hour a. Cost of Space Warehouse Manufacturing Office (Overhead+Labor+Materials)Cost/Piece Cost of virtually everything besides direct raw material and direct labor. Preventive/Predictive Maintenance Decreases Cost/Piece a. 2. We hope you will find them possible to produce during a one day audit and that the manufacturer will find them sufficiently rewarding to implement. Bottleneck Mitigation b.Toolbox Introduction The Toolbox is intended to supply you with a method of arriving at the necessary metrics which are required to write up and present Assessment Recommendations for Productivity. Inventory d. Scheduling Whether defect reduction increases pieces/person/hour or decreases cost/piece is somewhat arbitrary. Frequently if an action does one it also does the other. Labor Costs Skilled union. Generally the type of productivity AR which can be recommended on a one day visit can be classified as something that Increases Pieces/Person/Hour or Decreases Cost/Piece. Includes energy and waste. Quick Changes d. Labor Optimization e. Purchasing b. Overhead - 6. The principal metrics which are needed for ARs are: 1. Defect Reduction c.

The order of magnitude of the numbers should be correct under this approach and should "sell" the idea. This sheet has blanks for the information desired but contains (in parentheses) assumed values for many of the metrics which should be estimated for your part of the country. labor. SECOND TRY 2.. but we think we can present an approach which both you and the manufacturer will find acceptable. The information was provided by facility personnel or is based on regional averages.At first glance you might conclude that these are proprietary numbers which a manufacturer may be unwilling to tell anyone outside (or even inside the company). An important task early in the assessment process is the estimation of 7 . FINAL TRY 3. number of employees. FIRST TRY 1. or productivity cost savings opportunities. Use the PRODUCTIVITY METRICS sheet to make sure nothing is forgotten. It will also allow the IAC to provide Productivity ARs which are reasonable and. If the numbers were not all forthcoming before your arrival try to get company personnel to provide them during the opening interview. Again have the PRODUCTIVITY METRICS sheet with you as you ask for the information. Information in this section is used throughout the report when estimating material. even if not exact. During the initial contact and follow up before the visit get company personnel to provide the numbers needed at the same time they are supplying energy consumption numbers. and other facts about their manufacturing organization that we have always requested before the performance of an Industrial Assessment. sales figures. Get the plant personnel to commit to the reasonableness of the numbers or if they find your numbers unacceptable to give an alternative value which you can use in your productivity enhancement ARs. We also recommend that you include these metric values and assumptions in the introductory section of your reports (similar to or along with Plant Background summary) so that all values used to make the productivity calculations are readily apparent to the manufacturer. If the necessary numbers are denied to you during this opening interview then present the PRODUCTIVITY METRICS sheet which is prepared before you ever enter the plant. This approach allows the manufacturer to keep the information which he deems most private from appearing. will/should motivate the company to action.

Energy Direct Labor Waste Profit Materials Cost Overhead Cost per Part = Gross Sales / # of Pieces It is probably apparent that there are still some things such as Cost or Value of Inventory which can't be judged without knowing the cost per piece and how many pieces are in inventory. An example is shown in the pie chart below. 8 . so help from plant personnel will always be needed. Additional useful information for labor cost and the cost of space is given on the following pages.the manufacturer’s relative costs of operation. Gathering the information on the PRODUCTIVITY METRICS sheet will allow this. This is a critical step which will allow your team to focus on those areas which offer the most opportunities.

47/man-hour) ($25.50/hcf. including 35% fringe) Fringe Rate: ______% (35%) Raw Material Costs: Yearly Usage Material/Resource Unit Price Water Treatment Water Usage: /hcf ($2. 1 hcf = 100 ft 3) Production Information: Overhead: ( includes _____ . _____ .96/man-hour) ($100/engineer-hour) ($38. _____ .PRODUCTIVITY METRICS SHEET Labor Costs: Type of Labor Production Worker: Skilled Technician: Engineering (contracted): Engineering (in-house): Actual ________/hr ________/hr ________/hr ________/hr Assumed ($19.00/ft2/yr) _____% (15%) Value = ______ Value = ______ Value = ______ 9 .94/man-hour) (Items above in parentheses indicate total cost to the company. _____ ) Profit Margin: Cost per Piece to Produce: _____% (100%) _____% (10%) $______/piece Inventory and Floor space: Value of Floor space: Inventory Carrying Cost: Raw Material Inventory: Work-In-Progress Inventory: Finished Goods Inventory: Quantity = ______ Quantity = ______ Quantity = ______ _______/ft2/yr ($5.

35 $27.60 $180.50 $37.40 $156.80 $356.00 $50. Crane or Shovel Equipment Operators.60 $38.80 $177.35 $50.80 $179.60 $39.35 $40.00 $215.40 $300.40 $332.00 $207.20 $343. 10 ..60 $184.20 $157.25 $36.75 $25.55 $33.55 $21.60 $306.40 $196.20 $326.40 $21.35 $28.30 $27.00 $19.00 $404. inside ($0.80 $258.05 $37.20 $23.80 $305.Table 1: Cost of Labor 1 Basic Rate Incl.60 $293.80 $201.00 $357.00 $220.10 $37.65 $40.40 $20.00 $312. Equipment Operators.90 $28.20 $200.95 $23.00 $192.65 $44.35 $23.80 $320.45 $32.70 $26.95 $23.75 $40.40 $197.60 $197.60 $212.00 $152.40 $388.10 $31.15 $328.00 $226.20 $191.40 $266.00 $197.40 $186. 15th Edition.20 $213.60 $327.20 $148. Light Truck Drivers.55 $19.80 $313.50 $23. Inc.60 $355.20 $322.20 $172.30 $32.20 1Means Repair & Remodeling Cost Data.60 $314.60 $243. Medium Equip.50 $25.60 $352.65 $25.40 $328.65 $18. Master Mechanics Glaziers Lathers Marble Setters Millwrights Painters.75 $39.20 $41. Ordinary Painters.30 $19.80 $187.80 $226.80 $23.95 $38.80 $242.95 $44.40 $158.20 $166. outside ($2. Means Co.40 $172.80 $122.80 $218.00 $290.20 $357.30 $41.50 $19.50 $36.50 over trade) Foreman Avg.60 $335.30 $26.20 $342. Structural Steel Wrecking Rate w/ Overhead and Profit Hourly Daily $41. Structural Steel Paper Hangers Pile Drivers Plasterers Plaster Helpers Plumbers Rodmen (Reinforcing) Roofers. Oilers Equipment Operators. R.00 $258.S.80 $310.10 $22.40 $211.80 $249.40 $223.45 $31.60 $25.00 $289.70 $26.85 $32.15 $42.55 $41.60 $212.85 $44.00 $326.30 $48.25 $19.75 $32.60 $256.40 $382.40 $19.00 $26.00 Trade Skilled Workers Average (35 Trades) Helpers Average (5 Trades) Foreman Avg.05 $47.65 $42.95 $44.75 $28.80 $297.80 $23. Tile and Slate Roofer Helpers.20 $36.70 $24.40 $259.05 $24.20 $194.60 $356.20 $39.15 $26..50 $24.90 $40.00 $203. Composition Roofers.00 $44. Heavy Welders.30 $24.20 $152.00 $303.35 $30.10 $22..95 $30.60 $254.25 $27.60 $15.40 $24.00 $190.85 $38. Fringes Hourly Daily $24.20 $224.60 $186.40 $23.00 $154. Composition Sheet Metal Workers Sprinkler Installers Steamfitters or Pipe Fitters Stone Masons Structural Steel Workers Tile Layers (Floor) Tile Layer Helpers Truck Drivers.00 $155.55 $48.00 over trade) Common Building Laborers Asbestos Workers Boilermakers Bricklayers Bricklayer Helpers Carpenters Cement Finishers Electricians Equipment Operators.40 $385.80 $404.20 $40. Equipment Operators.65 $19. Light Equip.45 $44.40 $189.

Some companies who own the space they occupy do not view it as having significant value. 11 . A result is that the operations are expanded into all available space in an unoptimized manner. HVAC. Tables 2 and 3 can be used to estimate cost benefits for space related opportunities. other possible savings opportunities which should be considered include: reduced or avoided operating costs for the space (lighting. and reduced transportation costs (if traveling between two sites can be eliminated by consolidating operations). unused buildings are allowed to deteriorate and diminish in value. etc.Space Optimization The value of space is an important resource that is sometimes overlooked in manufacturing facilities visited by the IACs. In addition to the quantities listed in the tables. and dilapidated buildings are left standing (resulting in higher tax and insurance costs). Four basic options can be explored in an effort to improve the return from presently unoptimized space: • Optimize existing floor layout and: lease excess space to outside interests (see AR#24) reduce leased space requirements (see AR#21) avoid new construction for future expansions • Demolish dilapidated space to reduce tax and insurance expenses (see AR#22) Examples of cost savings calculations for the above opportunities are included in this manual in the noted AR write-ups. Potentially valuable floor space is used for equipment graveyards or storage of outdated products.).

00-4.000-60.00 $35.00-40.40 $4.00 $5.00 $20.00 $20.00 $35.00 $30.50-3.75-4.50 $3.000 sf 20.00-30.00 $17.00-60.60 $3.00 $30.000-60.00 $17.25 $23.00-60.20-4.00-21.50 $2.00-70.000 sf 60. 21996 Comparative Statistics of Industrial and Office Real Estate Markets.50-4.00 $3.75 $4.00-38.00 $3.50 n/a n/a n/a $3.00 $22.00-22. Society of Industrial and Office REALTORS and Laudauer Associates Inc.00 $4.50-4.00-48.75-3.00-34.00 $21.75 $3.25 n/a n/a n/a $3.15-3.000 sf 60.00-6.00 $58.000 sf 60.00-35. phone(202) 737-1150 12 .00 $2.00 $3.000-60.000-60.60 n/a n/a n/a $3.25-3.00-4.00 $32.000 sf 60.00 $21.00 n/a n/a n/a $27.00 $25.75-4.00-28.000 sf and up 0 to 20.000 sf 60.00-21.00 $5.000 sf and up Boston Chicago Dallas Denver Los Angeles New York Orlando Phoenix Washington D.00 $35.00 $25.50 $2.000 sf 20.00 $2.65 $3.00-9.00-35.40 $4.00 $37.000-60.00-24.25-5.000-60.00 n/a n/a n/a $30..00-40.50 $2.00-60.00 $5.00 $14.00-52.00 $2.75-4.000 sf 20.52-7.00 $20.50-6.000 sf 20.00-7.000 sf and up 0 to 20.00 $48.00 $30.00-35.000 sf 60.000-60.00 $23.50-3.00-6.75-4.000 sf and up 0 to 20.00-50.25 $4.25-3.00-3.000 sf and up 0 to 20.25 $12.80 $4.000-60.90-3.00-80.000 sf 20.00-45.000-60.15-3.50 $3.00 $23.00-2.00 $42.50 $3.00 $3.25-2.00 $39.000 sf 60.50-26.000-60.00 $2.00 $30.000 sf and up 0 to 20.00-23.00-50.00 $45.50 $2.30-4.00-63.25-5.80-3.Table 2: Value of Space 2 Sale Prices ($/ft 2 ) Lease Prices ($/ft 2 /yr) Central Central Vacancy City Suburban City Suburban Indicators $22.00 $25.25-3.C.00 $3.000 sf 60.75-4.00-50.00-26.00-37.00 $35.50-3.00 $26.00-45.50-3.60 $3.50-4.00 $25.00-37.00-55.000 sf 20.000 sf 20.00 $57.60 $3.25 $2.25 $3.50 $2.00-40.75-4.50 $3.00-35.00 $2.000 sf 20.000 sf and up 0 to 20.00 $62.00-45.000 sf and up 0 to 20.00-43.00-32.60-3.40 $4.90 $3.75 $3.00-4.50 $3.00-53.00-5.00 $3.00 $25.00-35.50-17.000 sf and up 0 to 20.90-3.00-18.00 $40.16-5.00 $2.00-27.00-40.50 $3.00-28.00 $3.00 $25.000 sf 60.00-24.75-4.25 $2.00-27.00-30.75-6.00-41.000 sf 20.00 $20.00-21.25-4.50 $27.60-3.75 $4.50-4.00 $25.00 $33.000 sf 60.00 $25.000 sf 20.00-30.00 $30.00-29.00 $20.75-6.95-4.50 $2.00 $36.00 $3.50 Moderate shortage Moderate shortage Moderate shortage Moderate shortage Balanced market Substantial shortage Moderate shortage Moderate shortage Substantial shortage Moderate shortage Moderate shortage Substantial shortage Substantial shortage Moderate shortage Moderate shortage Moderate shortage Moderate shortage Moderate shortage Moderate shortage Balanced market Moderate oversupply Substantial shortage Substantial shortage Substantial shortage Moderate shortage Moderate shortage Balanced market Balanced market Moderate shortage Moderate shortage Location Atlanta Size 0 to 20.00 n/a n/a n/a $30.25 $3.90-3.000 sf and up 0 to 20.25-3.25-5.00 $39.

35 $0.15 n/a $0.10 $0.35 n/a $0.20 $0..25 $0.60 $0.15 $0.10 $0.50 $0.40 $1.08 $0.25 $0.87 $1.00 $0.75 $1.10 $0.21 $0.08 $0.15 $0.23 $0.25 $0.Table 3: Cost of Maintaining Space 3 Location Atlanta Boston Chicago Dallas Denver Los Angeles New York Orlando Phoenix Washington.45 $1.30 $0.10 $0.08 n/a $0.23 $0.05 $0.07 $1.48 $0.35 $0. Maint. Region Central City Suburban Central City Suburban Central City Suburban Central City Suburban Central City Suburban Central City Suburban Central City Suburban Central City Suburban Central City Suburban Central City Suburban ($/ft 2 /yr) Real Insurance Structural Common Estate (Fire and & Roof Area Total Taxes Liability) Maint.75 $0.80 $1.15 $0.15 $0.35 $1.55 $0.12 $0.84 $1.10 $0.15 $1.20 $0.75 $1.08 $0.85 $0.C. phone(202) 737-1150 13 .50 $0.07 $0.55 $0.20 $0.20 $0.93 $1. Society of Industrial and Office REALTORS and Laudauer Associates Inc.15 $0.33 $1.10 $0.36 $0.99 n/a $0.12 $0.05 $0.14 $0.70 $0.50 $0.30 31996 Comparative Statistics of Industrial and Office Real Estate Markets.61 $0.07 $0. D.40 $2.75 $1.60 $0.35 $0.85 $0.20 $0.15 $0.50 $3.60 $1.20 $0.10 $0.07 $0.25 $0.10 $0.03 $0.35 $1.41 n/a $0. Cost $0.10 $0.88 $1.12 $0.30 $0.93 $0.10 $0.03 $0.15 $0.10 $0.16 $3.10 $0.25 $0.03 $2.78 $2.

The question list should accompany you to the plant and be used as reminders both in the sense of what to look for and what information to seek to complete an AR. in-process products. can you sell it? •Do you ever run overtime to meet production goals or compensate for defective batches? (related costs) •Do you have any plans for expansion? •Average value and quantity of each type of inventory (raw materials. material..)? •What causes each type of defect? •Are in-process and/or finished goods inventories built up due to potential defect problems in the production process (to ensure that the customer gets the products on time)? If so. lost production time. purchased components. General •If you can make more product.e. regrind-etc.Productivity Questions One more useful component of the Toolbox is a set of questions which can be asked (where they are applicable) to determine the likelihood of producing particular Productivity Enhancement ARs. what percent of existing inventory is considered excess? What is the value and quantity of overstocked goods in inventory? •Do standardized procedures exist for the processes where defects most often occur? •Does one machine operator produce significantly fewer defects than others? 14 . finished goods)? •What is the lead time of the product/process? ("product" could also be object for the next operation) Increasing Pieces/Person/Hour Bottleneck Mitigation •How has the operation changed over time? (product. procedure) •What is the optimal rate of this process/procedure? •Why is this process/procedure the bottleneck? Defect Reduction •What percentage of products are inspected? •In what stages/locations of the process do the most rejects (or clean-up) occur? •What are the most common types of defects? •How much does each type of defect or clean-up cost per year (labor. extra equipment or processes--i. equipment.

that operator’s expertise should be used to develop standardized operating procedures for training less effective personnel.(If so.) Quick Changes •How much time does it typically take to setup XYZ machine? •Do you need to do any adjustment to the machine? •Do you need to use any gauges or other measurement devices to adjust the machine? •How many different tools do you need for the setup of XYZ machine? •Can the setup be performed by the operator or is a specialist needed? •Do you need a period of time when you run pieces which are used just to get rid of initial problems? •Do you need to idle the machine for a while to bring it up to speed or to a proper temperature? •How do you clamp pieces to the machine? Do you use the same fasteners in all the cases? Labor Optimization •What percentage of the cost of production is labor? Direct / Indirect? •What is the pay scale? •What is the pay rate premium for late shifts? •Do you run overtime due to the lack of skilled personnel? •What is the cost of overtime? •Is this a union shop? •Do you ever work overtime to meet production goals? Why? •Are you lacking labor in a particular skill? •Are you keeping up with preventative maintenance? Preventive/Predictive Maintenance •Are there shutdowns of the production process? •Are these shutdowns unscheduled? •What are the duration and frequencies of these shutdowns? •What are the reasons for the unscheduled stoppages? •What is the cost/hour of production downtime? 15 .

number of shifts. why is that excess inventory needed? Burden •Is new construction planned? How much and why? •Do you manufacture or store goods in any other building nearby? •Would you be able or want to have a rent paying tenant occupying any portion of your building complex? •Do you place any value on equipment or facilities which seem to be "junk"? (If not. 16 . overtime)? •Ask questions about ratio indicators.Decreasing Cost/Piece Purchasing •How often are raw material deliveries received? •Are raw materials delivered based on the supplier’s convenience or planned needs at your facility? •How long do raw materials or purchased components remain at your facility before they are used? Floor Layout •Do you rent.? If the answer is YES. or demolish dilapidated facilities) Scheduling •Do you have operations where different sequencing of jobs would eliminate some non-value added operations. identify these operations. setups etc. What would be the right sequencing to eliminate these operations? •Do you have large size batch operations? •What is the company's operating schedule (including vacations. such as cleaning. it may be economical to scrap junk and use the freed space. lease or own the facility (or another)? (cost $/ft2 /yr) •How do you account for the cost (or value) of space? (cost $/ft2 /yr) •How many different products do you make? Inventory •How much floor space is used for each type of inventory? What is the assigned value (if any) of that floor space ($/ft2/yr)? •If it is determined that there is excess inventory of some type.

Second ratio is speed of the process (rate of production) to sales rate. why? •Do you experience multiple handling or multiple inspection? 17 .First ratio is production lead time to actual value added time to manufacture a part. Third ratio is number of pieces to number of work stations or operators in a line segment. •Identify processes or operations which you feel are more costly than they should be. •Do you use push or pull system in your manufacturing process? •If overhead cost is too high.

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The third step involves the streamlining of all setups. Storage areas could use waste heat from the molding operation and thus eliminate the necessity of running the cold press and producing unwanted parts which have to be reground and processed again later. it is critical to minimize their duration. Even additional heaters might be justified if the energy cost for preheating the molds is lower than the cost of imperfect runs). although the estimated reductions might be less than if an extended investigation was conducted. it is not as essential as with the internal setups to cut down the time required for the external setups. Internal setup is the time used for setup while the process cannot continue. In order to determine how to shift internal setups into external setups. Since production continues making useful goods in the meantime. Operators must be involved--external setup does not mean a different location or different people. Informal discussions with the workers and observation of the process often suffices. (Of course preheating can also be achieved using a source of heat other than waste heat. The first step is to identify internal and external setup tasks. From the previous statements it is obvious that shortening of the internal setup time has much higher priority. It is possible to divide the setup tasks into two groups: internal and external.Quick Changes Introduction The preparation of any machine to perform a specific task or operation is called setup time. Changing from internal to external setup usually cuts time by 30% to 50%. Since internal set-up tasks require a break in production. The second step is to convert as many internal tasks as possible into external. 20 . one must study the shop floor conditions in great detail. thus cutting their time. Keeping setup changes out of the hands of the machine operators merely creates a class of setup experts. One point should be brought to attention. Even during a one day assessment it is possible to discover great opportunities for time savings during setups. EXAMPLES OF HIGHER EFFICIENCY Preheating new dies for molding operations can be used as one example. External setup time is the time used to prepare machines and tooling for the next operation without stopping the process.

same size bolts should be used for all dies. The volume of the cylinder should be about 1000 times that of the mold cavity. 21 . welding of supporting legs can eliminate press shut height adjustment and enables the operator to use the same length bolts for clamping. During the molding operation vacuumize the tank. The process is finished with the vacuum pump to achieve complete vacuum. To achieve that using a vacuum pump takes quite some time. the valve is opened and the air from the mold will rush into the cylinder. after preparing the mold. but this time the operation will take fraction of the original time. though. The major benefit is the same shut height of the press. die A Standardizing Shim at Clamping Height 80 50 30 die B 320 30 80 50 Clamp Height Standardization Clamp Height Standardization Die Height Standardization Shim for Standardizing Die Height Positioning of a jig on a table by trial and error adjustment can be virtually eliminated by machining center holes and corresponding pins. Also. Another example could be standardizing the height of die. Then.Vacuum molding needs an almost complete vacuum. The adjustment of the height is tedious and time consuming and very critical for the proper operation of the press. thus the operator doesn't have to change tools. Use of the same length bolts is a bonus. A quicker method of creating the vacuum in the mold is to attach a cylinder to the mold using tubing with a valve. If one is higher than the other.

especially getting it through a length of a bolt that is too long and doesn't help in any way in attaching. Pear shaped holes for fasteners are another option. One should not be required to turn the nut all the way out of the thread of the screw.Attachment Plate die (set to h2/2 + Θ = K) h2/2 Θ X Y Jig for Adjusting Thickness centering jig on attachment plate (female) centering jig on machine (male) Centering Jigs One-turn clamping is a way to fasten and unfasten a piece using a single turn. Use of U-shaped washers could also be implemented. clamp The Clamp Method 22 .

) This can be accomplished by standardizing both processing quantities and processing times. In other words. If the waiting periods could be eliminated.clamping holes Fasten Here Attach and Remove Here Pear-Shaped Holes for Clamping by Turning Other great delays in production are caused not by inspection or transportation. production time could be cut. Then the goal should be at least not to produce more than necessary. but by time spent waiting for the processing of one lot to be completed before another lot can be processed. the highest output machine should not automatically be the targeted pace (meaning that there normally would be an effort to bring the capacity of slow machines up by parallel processing or other productivity 23 . (Based on available data. the real problem lies in standardizing processing times. common reductions are as much as two fifths. In some cases the disparity among machines cannot be eliminated. This is because different machines perform various operations and do not take the same times. Standardizing processing quantities can be achieved fairly easily. The capacities of machines vary as well.

design them in such a way that one turn will fasten and unfasten the fixture • Dovetail connectors. Asking how much time setups take is an obvious one. pins. it should be automatic when part are pressed together (using pins. The goal is not to overproduce because if something goes wrong all pieces in stock (or manufactured in the previous operation and waiting for the next machine) are wasted. When demand calls for high diversity and low volume. that while machines can be idle. that is external setup application • Movements should be combined or linked together • Parallel operations should be conducted • Setups should produce defect free products from the very beginning of the run • Quick connect and disconnect • Centering adjustments should not have to be made. after objective evaluation. etc. In some cases the answers given will immediately alert the auditor and call for his attention. The major difficulty in the production of relatively small quantity lots of any product is either the number of setup operations or the length of time it takes to perform them.improvements).) Questions to Ask The auditor should always ask questions pertaining to setup times and practices. however. workers must not be because the cost of manpower is generally far higher than the cost of amortizing machines. but the pace is set based on actual needs. The auditor should ask 24 . If. the reduction of a setup time should enable the reduction of inventory. The result could be that the fast machine has to wait. The quantities produced should be the quantities needed. one remedy is to build up inventory. wedges should be used • Intermediary jigs should be used. There is no absolute value for a proper setup time--an engineering judgment must be used. cams. it is found that inventory is excessive and setup times rather long. frequent setups are necessary to produce a great variety products. Principles • Adjustment cannot depend on feeling or experience • Functional clamps should be used over screws • If screws are necessary. However. the time involved can be. Even if the number of setup operations cannot be reduced. It is important to bear in mind.

Of course.questions which will give him answers as to whether the practices listed in the PRINCIPLES paragraph are used. Inventory build-up is one definite consequence of long setup times (among possible other reasons). However. • How much time does it typically take to setup XYZ machine? • Do you need to do any adjustment to the machine? • Do you need to use any gauges or other measurement devices to adjust the machine? • How many different tools do you need for the setup of XYZ machine? • Can the setup be performed by the operator or a specialist is need? • Do you need a period of time when you run pieces which are used just to get rid of initial problems? • Do you need to idle the machine for a while to bring it up to speed or to a proper temperature? • How do you clamp pieces to the machine? Do you use the same fasteners in all the cases? Symptoms/Indicators One of the most revealing indicators is excessive inventory. a possible reason to consider is that the machine is waiting for a trained personnel to do the setup. If during the plant tour one notices idle machines. Long lead times indicate large lot sizes and the reason for large lot sizes is most likely long setup times. • DECREASE CHANGE OF DIES & START-UP TIMES • USE FIXTURES TO REDUCE LATHE SET-UP TIMES • INSTALL A ROTATING NOZZLE CAROUSEL TO REDUCE SET-UP TIMES • EMPLOY MODULAR JIGS TO REDUCE PROCESS SET-UP TIMES 25 . it seems that the pictures and concepts are at least as helpful as the case studies. Related ARs Two ARs are included under this category. If not. there could be a variety of reasons for an idle machine. a great opportunity may present itself at once.

1985.000/ year Estimated Implementation Cost = $3.operations which can be performed while the machine is running The first step to reducing set-up times should be to shift as many operations as possible into the external set-up mode. and ii) the length of time it takes to perform each set-up. it is a common mistake for a technician to waste valuable time by retrieving tools after the production line has been shut down. long set-up times are not always necessary and should be avoided--especially when set-ups must occur frequently. Productivity Press.000 Simple Payback Period = 1. Documented results across a wide variety of industries indicate that set-up times are commonly reduced by as much as 95% once reducing set-up times is identified as a priority and quick-change strategies are implemented. however.Assessment Recommendation No. For example. 113 26 .operations which can be performed only when the machine is shut down (or at least not producing useful products) external setup -. p. Frequent set-ups are necessary to produce a great variety of different products. Further. the tools should be organized so the technician knows exactly where each tool is located and no time is wasted searching for misplaced tools.4 4 Shigeo Shingo. 1 Decrease Die Change-Out & Start-Up Times Assessment Recommendation Summary Estimated Cost Savings = $1.820.040. it WILL reduce the amount of time that the production equipment is offline. The setup procedure can be divided into two operations: internal setup -.7 years (about 20 months) General Two major difficulties in the production of relatively small quantity lots of any product are: i) the number of production line changes (“set-ups”) required. While this may not reduce the total time spent performing and preparing for the set-up. A solution to this problem is to deliver all needed tools to the machine PRIOR to shut down. "A Revolution in Manufacturing: The SMED System".

the timing of the piston pushing the gob out of the fore-hearth is changed. Next. On average. Most of these operations are presently carried out sequentially. Recommended Actions Reduce die change-out and start-up times by implementing the following: • Utilize the knowledge of your most experienced technicians to develop standardized procedures for all phases of change-out and start-up -. mechanical timings. 27 . if a “start-up” procedure is still in process when the first shift set-up team leaves. no adjustments are made until the following morning and that night’s production hours are wasted. cooling air flows.This should include a sequence of start-up adjustments. The set-up team. depending on whether just the molds need to be changed or whether the process also needs to be changed. and mold alignments. brings in new dies and mounts them into the individual molding stations. consisting of 8 specialized technicians. the shoots leading to the individual dies are replaced. there are 60 production changes per month. These procedures typically take anywhere from 1 to 4 hours. each technician goes about these adjustments in his own way and experience plays a large role in the speed of the adjustment process.” may take from 4 hours to 3 days. Although there are “many different paths to the same point. Since there is only one team capable of making the changes. the 24-hour period available in one day is not fully utilized. Since minimal written standardized procedures presently exist. referred to as “start-up.Existing Practice and Observation The following description is based on our conversations with experienced staff and not actual observation of a procedure because during our visit a change of dies on the production line was not performed.” establishing a standard set of guidelines about which path to take will reduce guesswork and the associated costly time delays. from the time the previous run is shut down until glassware of acceptable standards is obtained for the new product. This second stage of the set-up procedure. Hence. Production personnel stated that there are “many different paths to the same point. The second stage of the set-up process involves the fine tuning of the glass temperatures.” meaning that each technician may use a different path but they are all experienced enough to eventually obtain the desired results. and the intervals in between the shears' cuts are synchronized to produce the proper sized gobs. The average set-up time was said to be about 20 hours.

Based on the recommendations. we will consider saving only one fifth of the existing set-up time. Several of the suggestions above are already under investigation by plant personnel. our recommendation is based on estimates made by experienced staff at your company. 28 . to the machine prior to shutting down the production line -. • Install Strain Gauges -. Being conservative.This will reduce guesswork when responding to problems • Purchase and install two-level platforms -.• Design a tool kit which will hold all change-out tools in an organized manner and deliver the kit to the machine prior to shutting down the production line -.This will save time presently used searching for tools • Deliver all jigs.This will allow quicker temperature adjustments and better control. These actions cannot presently be performed simultaneously. Anticipated Savings Since the savings mentioned in the General section (a 95% set-up time reduction) seem too aggressive and also because they are based on sometimes time-consuming analyses of the setup operations. dies. the quickest possible implementation is recommended.This will allow quicker mold alignments. etc. this number was considered reasonable by the production manager.This will minimize production line down-time which is presently used for retrieving these items • Develop a troubleshooting guide describing common start-up problems and their fixes -. • Install Temperature Sensors -. including the development of standard procedures.This will save time during the change-out phase by allowing technicians to work on the upper level adjustments at the same time other technicians are performing mold change-outs and other lower level adjustments. Based on the large potential cost savings.

5 6 Office of Technology Assessment.400 hrs/yr)] = ($45.CES where CMS = Cullet Material Savings.($5. $10.Setup Times for All Lines) = ($45.32/hr) VST = $631.32/hr per production line Thus. is estimated as: VST = GSH . it was determined that it costs $5.CMS .000/yr) / [(84.06/hr per production line CES = Cullet Energy Savings. 29 . The value of raw materials added to the furnace for each production line is $10. based on a labor rate of $25.06/hr.000/yr) / (69.62/hr per production line ≈ $632/hr per production line We estimate the value of saved production time as $632/hr per production line.000. The following calculation is an estimate of labor saved by performing this recommendation6. however.The gross sales per processing hour.600 hrs/yr) GSH = $647 / hr per production line It is assumed that during set-up time. Facing America's Trash: What Next for Municipal Solid Waste The calculation assumes that the saved labor time is put to productive use in other areas of the facility.000 hrs/yr) .(60 chg/mon. these cost savings have been omitted from our annual cost benefit estimates. From this value. assuming that the time lost could have been used to produce salable products. the potential cost benefit is substantial. 1989. Hence.06/hr) . GSH. VST = ($647/hr) .5 The value of the saved production time.($10. To be conservative. $5. Even with all labor savings neglected.)(12 mon.(14. In addition. VST.32/hr less to re-melt the cullet which is collected during the set-up period as compared to virgin raw materials. can be obtained as follows: GSH = Gross Sales / (Annual Operating Hours for All Lines . it takes 1.200 Btu/lb less heat to melt cullet than it does to make glass from virgin raw materials.000.000/yr)/[(10 lines)(8400)hrs/yr ./yr)(20 hr/chg)] = ($45.000.96/hr. molten gobs of glass are dripped into the basement and are later crushed and used as cullet. no additional raw material costs will be incurred for a production line as a result of the set-up period because the gobs will be recycled and added to the furnace as cullet.

Hence.000. Based on a quote already obtained by facility personnel.96/hr. x (40 hr/wk) x (8 people) x (3 furnaces) Labor Costs = $99.000/platform) = $50... including installation. Hence.72 / setup Hence.. would be: Annual Cost Benefit = (Production Time Saved) x (Value of Saved Production Time) ACB = [(60 chg/month) x (12 month/yr) x (4 hr/chg)] x [$632/hr] ACB = $1.96/hr) x (4 wk/person/furnace) x .Time Saved per Setup = 0.82 x10 6 / year Implementation The estimated costs for the specific recommendations listed previously include: 1) Labor for equipment installation and preparation of setup tooling and standard procedures. Labor Costs = ($25..000 4) temperature sensors (3 per fore-hearth) 30 .96/hr) x (4 hr) = $103. Wages Saved per Year = (60 chg/month) x (12 month/yr) x ($830.20 x 20 hr = 4 hrs Wages Saved = ($25. for 8 people working 8 hour days at a labor rate $25.73 x 10 6 3) ten two-level platforms. Platform Costs = (10 platforms) x ($5. the annual cost benefit. The labor involved is estimated at 4 weeks of work for each furnace. the cost of the required six strain gauges per die is $35.686 2) The purchase and installation of jigs and strain gauges for all 78 production dies.84 / setup per person) = $830.72 / setup) Wages Saved per Year = $0.000 per die) x (78 dies) Strain Gauge Costs = $2.60 x 106 / year By reducing the present set-up periods by an average of 4 hours each. .84 / setup per person Wages Saved per Setup = (8 people) x ($103. ACB. Strain Gauge Costs = ($35.

Sensor Costs = (3 sensors/fore-hearth) x (10 fore hearths) x .000 + $99.. based on case histories from other facilities.04 x 106) / ($1. the present lengthy set-up times at your facility.. The sensors cost $5.500 a piece.7 years (about 20 months) Conclusion: It is important to realize the potential in implementing this recommendation. . and conversations with plant personnel. the estimated cost savings are considered reasonable.686 = $3.82 x10 6 /yr) Payback Period = 1. Cost = Strain Gauge Costs + Platform Costs + Sensor Costs + Labor Costs Imp. we hope that the above example will reinforce your present efforts to reduce set-up times and serve to focus your attention on this critical part of your operations. However. Cost = $2. x ($5.04 x 106 The simple payback period can be calculated from the following equation: Payback Period = (Implementation Cost) / ES = ($3.500/sensor) Sensor Costs = $165.. 31 ..The estimate is based on the price for an infrared temperature sensor capable of reading temperatures up to 3000 ˚F. Due to the large savings potential.000 + $165. We do not pretend to have thorough enough knowledge of your existing procedures to be able to specify the definite steps which are needed in order to achieve the indicated savings or an accurate implementations cost. the combined estimated implementation cost is: Imp.73 x 106 + $50. It is assumed that 3 sensors per fore-hearth will be installed.000 Finally.

Perform the bit alignment while the machine is running and have the fixture ready for a swap when needed. Since it was a single purpose lathe machine the opportunity to convert internal setup into external setup was obvious.180 Simple Payback Period = 0.000.Assessment Recommendation No. That was one of the most time consuming adjustments. A delicate adjustment needed to be made for the lathe cutting bits. There are more models if software variations (therefore more programming options) are considered as well. Existing Practice and Observation A four-spindle lathe is used to machine the diameter of shafts used for the revolving blades in washing machines. as is generally the case when gauges are employed. The production of the washing machines is at approximately one machine every ten minutes. the cutting bits were changed inside the machine and because of close tolerances required. Before the improvement program began. 2 Use Fixtures to Reduce Lathe Set-up Times Assessment Recommendation Summary Estimated Cost Savings = $378.000. The company offers four different models of washing machines in terms of hardware. The company sales are $70. a number of gauges had to be employed. 32 . While the machine is running the bits are mounted into a holder and still adjusted using a variety of gauges. It is recommended that in the new process the bits are held in a holder which is mounted precisely in a predetermined position on the lathe machine.08 years (about 1 month) Background The company makes washing machines which are sold around the world. but the whole process became an external setup not taking time from production. Recommended Action Make fixtures for holding the lathe cutting bits. The change now encompasses the switching of a holder instead of the individual bits.000/year Estimated Implementation Cost = $29.

00/hr Time to Manufacture = 1 week People Involved = 3 Number of Fixtures Needed = 4 Labor = ($40. Implementation Labor Rate = $40.Anticipated Savings Material = $575/fixture Labor involved represents the manufacture of the time) x (# of setups/year) ES = (200 pieces/hr) x ($31.180 Simple Payback = (29. Average Number of Setup Changes per Month = 30 ES = (# of pieces/hr) x (value of a piece) x (original time .4 (fringe benefits) x (1 week) x (40 hr/week) x 3 (people) = $6.08 years = (approximately 1 month) 33 .5/piece) x (15 min .00/hr) x 1.180) / (378.720/per fixture Implementation Cost = (575 + 6 720) x 4 = $29.000) = 0.5 min) x (1/60 hr/min) x 30 x 12 = $378 000/year ES = $378 000/year In this case the savings represent lost production on the machine.

the expenses were minimal amounting to approximately $1. Since the existing nozzles were utilized in the design of the rotating fixture.000. the rotation is initiated by a switch which positions the multiple rotating carousel with different nozzle location into the proper place. which are mounted on a single gearbox. Recommended Action The fix of the problem consisted of rotary mounting hardware making it adaptable to different types of pump cylinders. 34 . The change and position adjustment takes a skilled operator about five minutes. even though the filling of the intermediate fluid was automatic when the production line was running. The company sales are $85.Assessment Recommendation No. As stated above. all the hydraulically actuated diaphragm pump arrangements share the basic idea of an intermediate fluid which has to be filled into the cylinder of a pump at a certain position as the pump proceeds on the line. the line had to be stopped for five minutes for the manual adjustment before the run could resume. The rotation takes a couple of seconds. The pump models differ by size. Since the cylinder sizes differ. As a result of this improvement. The production rate is about fifteen pumps an hour. After the change.000. However. Existing Practice and Observation The filling of the cylinder cavity is performed with nozzles which are positioned above the filling hole in the cylinder. the manual change and adjustment of the nozzles before the next type of a pump started being produced was eliminated.200 per fixture. After the nozzle is properly adjusted it automatically fills the pump cavity. 3 Install a Rotating Nozzle Carousel to Reduce Set-up Times Assessment Recommendation Summary Estimated Cost Savings = $60.200 Simple Payback Period = less than one month Background The company makes metering pumps predominantly for the American market. The pumps are hydraulically actuated tubular diaphragm type.750 / year Estimated Implementation Cost = $4. the nozzle has to be changed and repositioned every time there is a change of a pump size. One pump assembly can have up to six different head arrangements. For all that time the pump assembly line is shut down.

The simple payback period can be calculated from the following equation: Payback Period = (Implementation Cost) / ES = ($4.material cost per piece) x (time saved) x (# of changes/yr) ES = (15 pieces/hr) x ($950/piece .750/yr) Payback Period = 0.200) / ($60.200 Average Number of Pump Sizes per Month = 10 ES = Estimated Savings = Net Sales Increase ES = (# of pieces/hr) x (value per piece . Energy cost increases are assumed to be negligible.5 minutes) x (1/60 hr/min) x 10 x 12 ES = $60. Since 6 extra nozzles were needed. The cost of material was estimated at $800 and labor at $400. It was recommended to buy an extra set of nozzles as a backup in case of failure of existing ones.200).$500/piece) x (4. $1800 of expenses have to be added to the cost of the project.750/year In this case the savings represent lost production on the line. The cost estimate obtained from the nozzle manufacturer was $300 a piece. We have assumed that the only costs which will increase due to increased pump production are the raw material costs.Anticipated Savings Material and Labor for the New Nozzle Carousel = $1.07 years (less than 1 month) 35 . Implementation Implementation requires the manufacture and installation of the nozzle carousel ($1. and gross labor costs will remain unchanged because the laborers who are presently waiting during the changes will be producing additional pumps during the recovered change time.

Recommended Action Employ jigs which would be modular. The operators. All the modular parts must be manufactured with centering holes or grooves so manual adjustment after installation is not needed. were cleaning around the line. The oil hole was drilled followed by large end cut.1 years (about 1 month) Background The company manufactures connecting rods for combustion engines. Centering adjustments were required when a jig. The total time involved was five hours and forty-two minutes.450/yr Estimated Implementation Cost = $8. in the meantime.Assessment Recommendation No. Existing Practice and Observation The aluminum die cast parts were delivered into the stock. The manipulation with the crane is completely eliminated.000.000/yr. The jigs for different operations were very heavy and therefore they had to be removed with the help of a crane. The cap was attached and the whole assembly bored out. was lifted onto a table. The sales are about $30. The number of employees at this location is 170. cleaned off with petroleum jelly. During setups.115 Simple Payback Period = 0. the drill had to be removed because it was in the way when the jigs were replaced. the trained setup technicians came to perform the desired change. The facility is housed inside a single 200. 4 Employ Modular Jigs to Reduce Process Set-up Times Assessment Recommendation Summary Estimated Cost Savings = $117. First reference holes were made. 36 . That way the heavy base part of a jig can stay in place all the time and different parts of the jig are replaced as needed. Then the parts were transferred to the line where they went through the following process. then a bolt hole was drilled.000 ft2 steel beam construction type building. In addition.

000.1 years (about 1 month) 37 . Based on the same wage structure as for mechanics the cost of the change would be: COST = (8 hours x 5 days x 3 weeks) x $25.450 / year where PLM = Production Lost Money Wages of qualified mechanic = $40. PLM = [(25 chg/month) x (12 month/yr) x (4.7 hr/chg)] x [$45/piece] = $63.000 Wages Saved $40.Anticipated Savings There is an elimination of one person during the setup operation because now the adjustment is not needed and the operator can perform the task alone. Total Cost = $8.115 Material cost was estimated for $5.450 + $54.000 ES = PLM + Wages Saved = $63.96/hour = $3.35 fringe benefits = $54. The main bodies of existing jigs can be used.115 The simple payback period can be calculated from the following equation: Payback Period = (Implementation Cost) / ES = ($8 115) / ($117 450/yr) Payback Period = 0.450 / year where ES = Estimated Savings Implementation Implementation requires manufacturing eight different fixture subassemblies. The time involved is estimated as three weeks.000 = $117.000 x 1. The time to perform the setup is estimated to take about one hour.

38 .

industries that have high internal rejection rates may not require more raw materials if the defect rate is reduced. In most cases. or energy use. They might not define a process/procedure as a bottleneck if a defective part is produced and it can be re-used as a raw material. If alleviating the bottleneck also reduces re-work. on a bottleneck. It is usually identified by waiting. the relationship between increased revenue and increased profits will be based on the amount of information available and should be handled on a case by case basis. Increasing the production rates can have additional costs involved. the issue should be brought up during the interview. in fact. On a per unit or per piece basis. Examples of such industries are paper. humidity). Conversely. however it could also be used to reduce production lead time. however. Second. it is important to realize that the perceived (or “theoretical”) bottleneck may not. Discussions about this topic with machine operators is advised. if possible. be the real bottleneck. including scrap. operators complained that the quality of the thread made it difficult to thread the machines. however two cautions are noted here. or higher quality raw materials. or of the entire plant. the recommendation may not require more labor. It can also be accomplished by the purchase of manufactured parts. by parameter control (temperature. Alleviating bottlenecks is often accomplished by installation of improved equipment or tools. 39 . In order to identify a bottleneck. many companies do not consider the effect of the net production rate. In most instances. or an existing one optimized. Identifying and alleviating a bottleneck in the manufacturing process allows an increase in throughput (pieces/person/hour) of a particular process. glass. Upon questioning. If a new piece of equipment is installed. plastics. or by (idle) machines. Changes in the specifications of the thread eliminated this bottleneck at a minimal cost to the company. and metals. a sewing factory manager described the hand threading of the needles as the bottleneck. this will increase revenue. For example.Bottleneck Mitigation Introduction A bottleneck in manufacturing is that process (or procedure) which restricts the entire operation from running faster. such as increased raw materials. First. either by workers. these quantities should remain constant or even decrease in some cases. labor. it may not use more energy.

procedure) • What is the optimal rate of this process/procedure? • Can you sell more product. HUMIDITY) USE AVAILABLE "LESS EFFICIENT" EQUIPMENT 40 . if you can make it? • Are you considering expansion? • Why is this process/procedure the bottleneck? • Do you ever run overtime to meet production goals? (related costs) Indicators / Symptoms • Waiting . product. tools • Excess Inventory (raw materials or in process) • Excessive motion or transportation Related Recommendations • • • • • PURCHASE / INSTALL MORE EFFICIENT MACHINERY PURCHASE BETTER TOOLS CHANGE THE SPECIFICATION OF RAW MATERIALS CONTROL PROCESS PARAMETER (TEMPERATURE.Questions • How has the operation changed over time? (product.for people. machines. equipment.

Assessment Recommendation No. 5 Add Machine Operators to Reduce Production Bottleneck Assessment Recommendation Summary Estimated Cost Savings = $208,780 /yr. Estimated Implementation Cost = $47,520 Estimated Payback Period = 0.23 years ( ~3 months )

Existing Practice and Observation During interviews with plant personnel, it was stated that the production bottleneck in the plant should be the tire press division; however, it was noticed that the tire presses are idle for about 10% of the time because they are waiting on in-process material from the previous process (tire machines). Automatic and manual tire machines construct the structure of the tires so they can be molded in the presses. There are 75 automatic and 50 manual tire machines. The automatic tire machines process 9 tires per hour and require only one operator. The manual machines are less efficient, producing only 6 tires per hour with one operator. With two operators, the manual machines can each produce about 9.7 tires per hour. Since this results in a lower tires per person rate (and a higher labor cost per tire) in the tire machine division, only one operator is presently used on the manual machines. The operating cost for the tire presses are relatively unchanged by increases in production, so if the presses were to operate at maximum capacity there would be very little additional operating costs. According to management, the company can sell all the tires it can produce (at the current price) and opportunities to increase the total plant output are of great interest.

Recommended Action A second machine operator should be added to the manual tire machines in order to increase the production enough to keep the tire presses operating continuously. The additional operators on the manual tire machines will increase the cost of producing each tire in the tire machine division, but will lower the overall production cost per tire by eliminating the existing idle time of the tire presses. Idle time at the tire presses is a waste of the labor efforts of the press operators.


Anticipated Savings Under the present operating conditions, at maximum output the tire machines can only produce 23,400 tires a day and are doing so. If a second operator is added to the manual tire machines for all shifts, the maximum daily output from the tire machines division will be 27,840. If the tire presses are operating continuously they can only mold 26,000 tires a day, so it will not be necessary to keep two operators on all of the manual machines during every shift. Only enough extra operators to increase production to 26,000 tires per day will be will be needed to eliminate the idle time of the presses. The number of estimated additional operator-shifts per week is 88. We have conservatively assumed that the only costs per unit which will be affected by the increased production of tires will be from these two divisions (machines and presses). As the total production is increased, the total costs for each other division will increase but the cost per unit should remain the same. For example the total cost for raw materials will increase because more tires will be made, but the raw material costs per tire will not be affected. These increases in total cost will be proportional to the increase in revenue from sales of the new tires. The annual total cost savings, ATS, achieved by the addition of a second operator on some of the manual tire machines can be determined using the following equations: Operating cost with one operator on the manual tire machines: CIA = The cost per tire (tire machine division) with only one operator CIA = [ (CPO x HRO ) x (NAM + NMM) ] / TAO + TMC CPO = Cost per hour for machine operator HRO = Hours of production operation NAM = Number of automatic machines operating NMM = Number of manual machines operating TAO = total amount of tires produced per day with one operator TMC = cost to operate the tire machine for each tire CIA = [($32.50/hr x 24 hrs) x (75 + 50) ] / (23,400 tires) + ($0.75/tire) CIA = $4.92 per tire in tire machine division CTP = The cost per tire to mold the tires produced by single operators CTP = (NTP x HRO x CPO) / TAO + CPT NTP = number of tire presses (there is one operator per tire press) CPT = cost to run the press per tire CTP = (145 presses) x (24 hrs) x ($32.5 / hr) / (23,400 tires) + ($0.33/ tire) 42

CTP = $5.16 / tire TTPO = The total for the two processes with one operator TTPO = CIA + CTP TTPO = $4.92/tire + $5.16/tire TTPO = $10.08 per tire Operating cost with two operators on manual tire machines: CSO = cost per tire (tire machine division) with second operator CSO = (CPO) / (MPR) + TMC MPR = additional tires/hr produced by second operator on manual machines CSO = ( $32.5 / hr ) / (3.7 tires / hr) + ($0.75) CSO = $9.53 / tire The extra tires that are produced will not require any additional operators at the presses, therefore no labor costs at the presses will be associated with the additional tires--the workers will now be producing tires during the time previously spent waiting for tires to be delivered. The only additional costs that will be incurred at the tire presses are for the increased maintenance and energy costs of the machinery. CPS = cost for the press to make additional tires (no additional labor costs apply) CPS = CPT CPS = $0.33 per tire TTPT = Total cost per tire for the two processes with two operators TTPT = CSO + CPS TTPT = $9.53 / tire + $0.33 / tire TTPT = $9.86 per tire The unit savings per tire, UST, for additional tires produced will be: UST = TTPO - TTPT UST = $10.08 / tire - $9.86 / tire UST = $0.22 per tire Finally, the total annual cost savings, ATS, can be calculated using the following formula: 43

78 for the additional 2600 tires produced.00 when operating the presses at a 90 percent level. a twentytwo cent drop from the cost to make the first 23.00/tire) x (2600 tires/day) x (365 days/yr) = $2. CTO = NOW x THT x CPT NOW = number of workers to be trained THT = number of hours that the workers will be trained CPT = The hourly rate paid for time while training CTO = (88 workers) (24 hours) ($22. the cost per tire will drop as the presses begin to operate at a rate closer to 100 percent. CTO.400 tires.22/tire ) (2. It was stated that the cost per tire will only change in these two areas if the additional operator is used on the manual tire machines.400/yr. From the previous conclusions.520 Payback Period = Implementation Cost / ATS = $47. can be determined using the following equation.467.520 / ($208.50 /hr) CTO = $47.780 / yr The company has determined the cost to make one tire including all expenses is $26. The cost per tire will drop to $25.10) x ($26.600 tires/day) (365 days/yr. Implementation and Simple Payback The additional workers that are hired to work on the manual tire machines will have to be trained to operate the machines. Assuming a 10% profit on each tire.23 yrs ( ~3 months ) 44 . Not included in the above savings calculations is the additional revenue produced by the sales of the extra tires.) ATS = $208. The total cost to train the operators.780/yr) = 0.ATS = SPA x NAT x DPY SPA = Savings per additional tire produced NAT = Number of additional tires produced per day DPY = Production days per year ATS = ($0. the increased annual revenue obtained from producing the extra tires (not including the savings calculated above) would be (0.

Tests in the production area have indicated that the humidity levels are not above those recommended by either the manufacturer of the cutting machine. 6 Install Refrigeration System to Cool Product Assessment Recommendation Summary Estimated Additional Revenue = $285. or the supplier of the raw materials. Measurements of the surface of the film indicated temperatures averaging 120˚ F.611 Simple Payback Period = 7 months Existing Practice and Observation The process of manufacturing thin plastic sheets for the printing industry involves melting the raw materials and pellets. Further discussions with the manufacturer of the raw materials uncovered that it is. They stated that the sheets would stick together if the surface temperature of the finished product was above 100˚ F. a temperature parameter that is being exceeded.000. The bottleneck in the process is the cutting machine which is presently running at approximately 1000 sheets per hour. in fact. 45 . The option of air conditioning the entire facility to alleviate the problem was rejected by management. mixing them with pigments and other additives.000/yr Net Profit Increase = $24.700/yr Estimated Implementation Cost = $13. Management has indicated that the company sells all of the sheets produced and would like to increase production levels in order to gain increased market share. According to the manufacturer of the equipment. The rolls are then trimmed. and passed through a cutting machine which cuts them into the desired finished width and length. This new machine would cost approximately $150. this machine should be producing 1500 sheets per hour. The reduced production rate is due to the fact that the sheets stick together if the machine is run any faster. The operators feel that high humidity levels are the cause of the sticking. packaged and shipped. and molding them into rolls.Assessment Recommendation No. Discussions with management reveal that your company is considering the purchase of a second machine to reach production goals. They are then stacked to a pre-determined count.

237 $13. Calculations show that 180. Estimated Savings = Net Profit Increase = IP x hr x V x P .10) . and with alarms. with one ducted to the bottom of the leaving sheets. This will provide some redundancy in the event that one unit is out of commission.000 $396 $378 $1.095/sheet) x (0. Refrigeration units .Recommended Action Install a refrigeration system with ducting to blow cool air both under the sheet leaving the cutting machine. The controllers should be specified with either Proportional Integral or Fuzzy Logic Control. Anticipated Savings The operating cost of the refrigeration equipment is estimated to be about $3. Savings = (500 sheets/hr) x (6.800/yr) Est.OC Where IP = increased production/hr hr = hours of production 30 hrs/shift x 4 shifts/wk x 50 wk/year V = Value of Product ($/sheet) P = Profit Margin (assumed to be 10%) OC = annual operating cost of the refrigeration equipment Est.000 BTU/hr x 1 ton/12. etc.$600/ ton 200. Savings = $24.800/yr.($3.000 Btu/hr air conditioning units be purchased. and the other directed to the top of the stack.) add 10% Total 46 = $10.611 .000 BTU x $600/ton Infrared Temperature Sensors (4) Controller (2) Labor: 20 hr x 2 installers x $40/hr Ancillary Equipment (utilities. Each unit should be controlled by an infrared temperature sensor.000 hr/yr) x ($0. of refrigeration is required to reach desired temperatures and production rates. and on top of the stack of film.000 Btu/hr.600 $1.. We also recommend that the unit have the capability of recording the production rate of the cutting machine..700/yr Implementation Implementation of this recommendation requires that two 100.

000.000 more pieces could be sold if produced.000/yr Estimated Implementation Cost = $67. Competition is making inroads on profit margin. Production on the four present machines has been 220 pieces per hour. Competition has been putting pressure on the company to maintain its profit margin and sales level.976 $1. Overhead (Burden) costs are estimated at 200% of direct labor costs for this company.100. Annual sales are $2.85% for the current machines. Anticipated Savings Annual Sales per year/Parts per year Current Direct Labor Cost Fringe Costs for Labor (35%) Current Cost of Raw Material Overhead at 200% Direct Labor Total Estimated Cost = = = = = = $4.000 per year for these pieces.28 years (~ 3. Raw material costs are about $1. The new machine is expected to use the same amount of power per part but have only a 1% spoilage rate. Spoilage rate (defects) average 3.000 47 . Direct labor costs for the machine operators are estimated to be $23 per hour and the operator works 2.000 $382.000 pieces per year.500 Simple Payback Period = 0.100.000 per year. Increased demand for pieces indicates that up to 50. This machine can still be operated by a single operator.4 months) Existing Practice and Observations Machined piece orders have been sufficient to use the full year's time of four machine operators.741.000 including installation and removal costs of three old machines.720 $1. 7 Replace Old Lathe With New Automatic Multi-station Tool Assessment Recommendation Summary Estimated Increased Profit = $239.360 $66. Current production is 440. The new machine cost is estimated as $75.546 per part $191.080 hours per year. It is believed that lowering production cost can result in increased sales and profits Recommended Action Purchase a new automatic multi-head machine tool which is estimated to produce 180 pieces per hour to replace three of the current machines.Assessment Recommendation No.

000/yr Using the new machine and one of the current machines production will be 480.510 per part = $0.960/yr The increase in profit would be: $498. but decreased direct labor costs.150 is due to the increased sales with a better margin.000 Estimated Cost Per Part = $3.660 pieces per year.500.28 years (~ 3.546/part . Assuming all the goods can be sold at the current price per part the profit would be: 480.Annual Costs) = $259. Implementation and Simple Payback The cost of the new machine with installation is $75.Estimated Cost Per Part = $3. The salvage value of the three old machines is estimated to be $7.175.500) / ($239.$3.957 per part Profit per part (estimated) = $4. If it is estimated that overhead costs will remain the same due to increased debt costs and perhaps marketing and sales costs.000/yr .957/part = $0.$3.680 $33.510 per part Cost Savings per Part = $3.589/part Estimated Profit margin = 15% Estimated Profit = (Annual Sales .$259.490 $1.000. The net implementation cost is then $67.000 $382.000/yr = $239.500 and the simple payback is: ($67.4 months) 48 .447 per part The manufacturer will thus have room to increase profit margin and produce more parts than the previous years.510 per part) = $497.000/yr) = 0. then conservatively: Future Direct Labor Cost Fringe Costs for Labor (35%) Future Cost of Raw Material Overhead Total Estimated Cost = = = = = $95.660 parts/yr x ($4.687.720 $1.000/yr Of this increased profit about $196.546 per part .850 is the increase due to decrease in cost per part and the remaining $42.957 per part .$3.

The first two items above can normally be determined by questioning plant personnel (see the question list in the next section for guidance). wasting labor efforts. the most difficult task in identifying and estimating the potential benefits of an assessment recommendation is obtaining reliable information. Time spent producing defective parts can be costly to manufacturers. and clean-up.” or high “internal scrap rate.Defect Reduction Introduction The concept of defect reduction should be a focal point when considering potential productivity improvements in industrial facilities. material handling. it does very little if anything to reduce the number of defective items produced. and causes of product defects are normally well-known by quality control personnel or machine operators. Sensors can be used to detect the occurrence of defects and. where inspections are performed at the end of the production line. energy. A process can yield a large number of defects but zero scrap if the defective items are re-used in the process. Once the nature of the most costly defects are identified. raw materials. One note of caution: it is important to distinguish between defect rate and scrap rate. inventory. the defects may be “hidden” from management (because there are no defective parts to be seen) but may result in significantly reduced productivity because the number of acceptable items produced by the machine or process will be less than optimal. While this effectively reduces the number of defective products which are passed along to the customer. Often. and requiring increased costs for inspection. Such a process is said to have a low “internal yield. more importantly. A shortcoming of many statistically based quality control systems. Feedback from the sensors to machine operators may be achieved using 49 .” In such a case. provide valuable feedback either to machine operators or directly to the process equipment. frequency. Fortunately. is that they are intended only to separate the defective products from the good products. The major tasks involved in making a defect reduction recommendation will be: 1) identifying those defects which are most costly. and 3) recommending actions which will reduce or eliminate the defects. The time between the detection of the defect and feedback to the process line is often hours or days--too long to be of much use. 2) determining why those defects occur. the nature. installing new sensors may be a common solution or at least part of the solution.

In cases where serial defects are a common problem. In fact. however. sometimes the defect can be detected before it occurs.) are needed. or procedural modifications which will reduce those defects in the future. Various types of sensors are available which can be used to detect parameters such as: • Positions • Pressure • Shapes (2D or 3D) • Temperature • Dimensions • Humidity • Presence of foreign matter • Vibration • Damage/Displacement • Counts or cycles • Color mismatch • Timing The most thorough quality control system is one in which 100% of the products are inspected after each process.flashing lights and/or buzzers which are triggered by the sensor output.. Using people to conduct 100% inspections would be extremely expensive and impractical in most circumstances. or repair it. shutting down the process or machine is recommended unless the start-up efforts are extensive. Defects should be detected as soon as possible after they have occurred to avoid additional value-added processes from being performed on a product which is already defective. it is usually best not to shut down the production line. but to automatically reject the defective part and scrap. broken or chipped tools. temperatures. sensors can be installed to detect when those conditions occur and adjust the appropriate parameters or stop the process before defects are produced. If the conditions which cause a defect are known (e. They have the capability to inspect at high rates of production and provide visual. audio. material. or process control feedback. humidities. etc.). process. etc. When defects commonly occur as abnormalities or isolated incidents. Often. movements. pressure. or by indicating to the operators that parameter adjustments (temperature. This feedback can be used to identify the causes of defects and can lead to equipment. sensors may be used to perform 100% inspections with high reliability and a very low cost. recycle. positioning. and feedback from the point of defect detection to the operation which caused the defect is immediate. 50 .g. pressures. Immediate feedback can also be used to prevent “serial defects” (a large batch of defective products) by shutting down the production line until the cause of the defect is identified and fixed.

AND COUNT DEFECTIVE PARTS AND PROVIDE FEEDBACK (TO REDUCE INSPECTION COSTS. and at what average pay rate? • Are in-process and/or finished goods inventories built up due to potential defect problems in the production process (to ensure that the customer gets the products on time)? If so. regrind--etc.. material. OR PROCEDURES TO REDUCE PRODUCT DEFECTS • DEVELOP STANDARDIZED PROCEDURES TO REDUCE PRODUCT DEFECTS • INSTALL SENSORS TO DETECT. Related ARs • MODIFY EQUIPMENT.) Symptoms/Indicators • High defect rates • High scrap rate • Large in-process or finished goods inventories • Large inventory of scrap • Frequent regrinding. PROCESSES. OR ADDING VALUE TO DEFECTIVE PARTS) 51 .)? • What causes each type of defect? • If you can make more product. repair/rework.Questions to Ask • What percentage of products are inspected? • In what stages/locations of the process do the most rejects (or clean-up) occur? • What are the most common types of defects? • How much does each type of defect or clean-up cost per year (labor. what percent of existing inventory is considered excess? What is the value and quantity of overstocked goods in inventory? • Do standardized procedures exist for the processes where defects most often occur? • Does one machine operator produce significantly fewer defects than others? (If so. lost production time. extra equipment or processes--i.e. can you sell it? • Are overtime hours ever worked to meet production demands or compensate for defective batches? If so. REJECT. etc. in-process recycling. how many man-hours per year. that operator’s expertise should be used to develop standardized operating procedures for training less effective personnel. SERIAL DEFECTS.


it seemed as if the operator was “fighting a losing battle” and that re-design or modification of the transfer devices (swing-arms. At the molding stations. When the line operator notices that the glassware from one of the molding stations is repeatedly being knocked over. Based on experience. the operator knows the necessary adjustment to make. rakes. the operator makes a small adjustment to the swing-arm to eliminate the problem. A mechanical device (“swing-arm”) then slides the glassware onto the moving conveyor. and 3) while being pushed by the rake from the molding station conveyor onto the Lehr conveyor. freshly molded glassware is removed from a mold and placed on a level surface next to the conveyor.Assessment Recommendation No. These locations are indicated in AR#8. the time from when the glassware begins to be knocked over until the operator fixes the problem was observed to be extensive (resulting in 10 or more consecutive tipped glasses before the problem was fixed). At a typical molding station. Diagram #1. The bottles were typically knocked over during one of three processes: 1) when being slid from the molding stations onto the conveyor line by the “swing-arms. etc.” 2) during the turn in the conveyor line at the “star” wheel.094 Simple Payback Period = 0.) is needed in order to significantly reduce the amount of fallen glassware for an extended period of time. interfaces between conveyors. Although the required adjustments are minor and usually take less than one mold cycle to perform (less than 10 seconds). Most instances of fallen glassware occurred at locations 1 and 3. 53 . a significant percentage of the glassware on several of the production lines was observed to be knocked over during movement from the molding stations to the entrance of the Lehrs (annealing ovens).4 years (5 months) Existing Practice and Observation During the assessment visit. 8 Reduce Defects By Reducing Bottle Tipping Assessment Recommendation Summary Estimated Production Time Savings = 630 hrs/yr Estimated Cost Savings = $398. there are 6 to 8 molds and swing-arms which the operator must monitor and frequently adjust. Due to the need for the operator to make such frequent adjustments.160/yr Estimated Implementation Cost = $152.

On other production lines. No additional knock-downs occur at the raising rakes. On the forward stroke (from the molding station conveyor to the Lehr conveyor). the rake pushes glassware onto the Lehr conveyor. the rakes were observed to remain just above the conveyors and therefore knock over the glassware which moved behind the rake while it was in front of the molding station conveyor (see AR#8. Diagram #1: Plan View of Glassware Transport System from Molding Stations to the Lehr Entrance The rake at the Lehr entrance moves back and forth across the molding station conveyor to (and from) the Lehr conveyor."star" wheel 1 mold conveyor 2 Molding Station "swing-arm" 3 Lehr Lehr Rake Lehr conveyor rake slides bottles from mold conveyor onto lehr conveyor AR#8. the rake is raised on the reverse stroke so it passes over the glassware (see AR#8. According to facility personnel. all rakes are presently capable of raising on the return stroke and rake motion adjustment is a common part of the 54 . Diagram #3). Diagram #2). On the reverse stroke for several of the production lines.

More importantly. Observations of inefficient rake motion on the day of the assessment may indicate that either some of the rakes are prone to becoming “unadjusted” or that the rake adjustment portion of the set-up procedures is sometimes not properly performed. These sensors should also be capable of recording the number of tipped bottles which occur over a period of time (per shift) to provide feedback to management regarding machine and operator performance. Recommended Action Reduce product defects by installing sensors which detect when glassware is being knocked over and provide immediate feedback (a flashing light) to the line operators. modify (or re-design) the mechanical devices which are causing the glassware to fall over. glassware which exits the Lehr and has been knocked over is immediately rejected because of surface defects. 55 . According to the selector personnel in the “cold room” inspection and packaging area. Hence. it may also help reduce the amount of fallen glassware to attempt to schedule similar (in terms of size and shape) glassware to be produced on the same line whenever possible. primarily: 1) the “swing-arms” which slide the glassware onto the conveyor in front of the molding stations. On the line(s) with non-raising rakes and glassware with a geometry susceptible to tipping. and some shapes are more prone than others to being knocked over. 25% of the glassware entering the Lehr was observed to be knocked over. Facility personnel claim that 9 of the 10 production lines have frequent problems with fallen glassware. and/or “top-heavy” glassware is most susceptible to falling over. slender. and 2) the rakes which push the glassware onto the Lehr conveyor. design changes which may reduce the knock-over rate for small glassware may not work for large glassware (and vice-versa). Since there is a wide degree of variance between product sizes and shapes. Tall.production line set-up procedures.

Glassware Knocked over on Rake Return AR#8.Represents a fallen bottle Lehr Positon #1 .Rake Forward Lehr Position #3 . Diagram #2: Plan View of Glassware Transfer from Mold Station Conveyor to the Lehr Conveyor 56 .Rake Back Lehr Position #2 .

Improperly Adjusted Rake Travel Path Glassware Lehr Lehr Rake Mold Conveyor Lehr conveyor Properly Adjusted Rake Travel Path Glassware Lehr Lehr Rake Mold Conveyor Lehr conveyor AR#8. Diagram #3: Existing Rake Travel Paths--Improperly Adjusted Travel Path Results in Fallen Glassware on Return Stroke 57 .

the required quantity of acceptable glassware will be produced in a shorter amount of time) can be used to make other products and no production line idle-time will occur as a result of the increased production rate. as much as 25% of the glassware entering the Lehrs on several of the production lines was observed to be tipped over). is considered to be conservative (on the day of the assessment.Anticipated Savings This analysis includes the following assumptions: • Nine of the production lines have frequent problems with fallen glassware (based on interviews with facility personnel). The annual production hours for a production line are considered to be the annual plant production hours minus the average monthly set-up hours per production line. based on results achieved in other industrial facilities. This is viewed to be a conservative assumption. again. This assumption is based on observations by our assessment team on the day of our visit and. The time saved due to the decreased defect rate (if the defect rate decreases. ACS. no units 58 .RR) x SLR where NPL APH FPT = number of production lines with tipping problems. • • • • The annual cost savings. Actual reductions in fallen glassware should be greater. was calculated as follows: ACS = NPL x APH x FPT x PFTG x FTGA x FTG x (1 . hrs/yr = fractional productive time (fraction of the facility operating hours for each production line which are non-setup hours). Twenty-five percent of the glassware on those 9 production lines is prone to tipping due to the size and shape of the products. Seventy-five percent of the fallen glassware can be prevented by implementing this recommendation. For the glassware shapes which are prone to tipping. no units = annual production hours. an average of 10% of the glassware entering the Lehrs is knocked over.

83.75)(0. Production lines in the plant are in operation 24 hrs/day.0. can be estimated using the following equation: APH = FPH . the annual production hours per production line. Hence. APH.25)(1 . about 60 glassware “shapes” are produced in a typical month. hrs total number of production lines in the facility. FPH TMS AST TNPL Thus. Each “shape” change requires a mold change-out and process set-up.(60 set-ups/month)(12 months/yr)(20 hrs/set-up) / (10) = (8400 hrs/yr) .960 hrs/yr The fractional productive time. FPT. Thus. $/hr (per production line) According to facility management. APH = (8400 hrs/yr) .35 for the typical rejection rate. for a total of 8400 hrs/yr. no units average duration of a set-up period. is the fraction of the facility operating hours for each production line which are non-setup hours.83)(0. The average combined set-up and change-out time is about 20 hours. the annual cost savings is estimated as ACS = (9)(6960)(0. no units . we will use a value of 0. Finally. no units SLR = shutdown loss rate (cost per hour for a production shutdown).(1440 hrs/yr) APH = 6. no units RR = typical rejection rate for a batch of glassware.PFTG = present fraction of tipped glassware (fraction of the total glassware that was observed to be tipped over). According to facility production management.TMS x (12 months/yr) x AST / TNPL where.10)(0. 7 days/wk. RR. Thus. hrs/yr total number of monthly production changes (“set-ups”). 50 weeks a year. no units FTGA = fraction of tipped glassware that is avoidable. thirty-five percent of the glassware produced is rejected. no units FTG = fraction of “tippable” glassware (fraction of products on these production lines whose shape and size make them prone to tipping).240/yr) 59 = = = = facility’s annual production hours. FPT = APH / FPH = 6960 / 8400 = 0.35)(632) ACS = (9)(70 hr/yr)($632/hr) = (9)($44.

Fabrication. and 4) recording the pieces of fallen glassware during a pre-set period of time. for a total of $20. 2) setting off a beacon (flashing light) to warn the line operator of the problem. documenting the most common causes of fallen glassware on each production line and the actions taken by the mold operators to correct each type of problem. this estimate is considered to be higher than the expected costs but is subject to change dramatically depending on the required modifications which are uncovered by the in-house study and engineering recommendations. The system would be capable of sensing: 1) when a bottle (or a number of bottles in a pre-set period of time) has fallen. Diagram #4. with one sensor located just above the conveyor line at the bottom of the glassware and the second sensor located at an adjustable position vertically above the bottom sensor. A representation of the proposed tipped glassware sensing system is shown in AR#8.000. A set of two through-beam optical sensors would be needed at each sensing station. at $100/hr . 60 . purchase. Re-design of the mechanical components is estimated to require 200 engineering hours. representing a [(70 hr/yr) / (6960 hr/yr)] x 100% = 1% productivity increase.ACS = $398. The mounting bracket for the sensors should allow the vertical adjustment of the top sensor to allow the system to be used for glassware of various heights. 3) rejecting the fallen bottles using compressed air (to prevent wasted time in the cold room handling fallen glassware). The production lines should be observed for extended periods of time.000. This will expose the mechanical components which need to be re-designed and may also suggest possible solutions (based on the mold operator’s present methods of repairing each problem). Implementation Re-design and modification of the mechanical devices which are causing the glassware to fall over will require an in-house study.000 in engineering expenses. resulting in a total estimated project cost of $120.160/yr The number of hours per year which would be made available for producing additional products if the bottle tipping problems are improved is estimated as 70 hr/yr (per production line). Based on results in other facilities. and installation of new components is estimated at a total of $100.

Diagram #4: Proposed Tipped Glassware Indicator System 61 .Optical sensor setup #1 emitter receiver Result from upright bottle warning beacon Power supply power supply power supply solenoid valve Inputs to PLC Inputs to PLC From sensors from sensors output to sensors Outputs from from PLC results of sensors Molding Station PLC Lehr Lehr Inputs to PLC Power supply from sensors power supply Optical sensor setup #2 emitter Output from results of sensors Result of tipped bottle receiver warning beacon Power supply power supply solenoid valve AR#8.

two solenoid air valves and four through-beam optical sensors would be required to place two sensing stations on a production line.566 per production line. Hence. Implementation will also require the fabrication of adjustable mounting brackets (for the optical sensors) which can be created in the company machine shop. $148 each for the warning beacons.094) / ($398. in turn. The simple payback period can be calculated with the following equation: Payback Period = (Implementation Cost) / ACS = ($120. and 3) add to the count of fallen glassware. An approximate cost for the design and fabrication of the sensor mounting assembly is estimated at $1000. the beam from both sensors will be interrupted and no action will be taken by the programmable logic controller (PLC). One PLC can control at least two of the sensing stations. 2) momentarily open the solenoid valve on the compressed air nozzle (to blow the fallen bottle off of the conveyor).4 years (5 months) 62 . The purchase and installation of a programmable logic controller.160/yr) = ($152. $49 each for the solenoid valves.160/yr) Payback Period = 0. and $203 each for the optical sensors. only the bottom beam will be interrupted and a signal will be sent to the PLC which. If a bottle has fallen. This is shown in the “Optical sensor set-up #2” box in Diagram #4. The approximate cost for the components are $860 for the PLC. Modifications to the existing compressed air line to allow the use of the solenoid controlled compressed air bottle rejecters would cost an additional $500 per system.000 + $32. two warning beacons. will: 1) switch on the beacon.If a bottle is upright. or $32. This is shown in the “Optical sensor set-up #1” box in Diagram #4.094) / ($398. the total installed cost for the fallen bottle sensing system would be $3.094 for 9 production lines.

All the inspection is done by separate personnel to ensure that there are no unacceptable gaskets being allowed to be packaged. The operators that realign the machines have an acceptance rate of about 105 out of 120. the rubber gasket is then removed and placed back into the rubber melt to be reused. The other 21 gaskets are removed.74 per gasket.Assessment Recommendation No. Workers take the gaskets while they are hot and mold them onto the parts to allow the gasket to cool and solidify. The part also gets sent back and has to go through the process again. After the gaskets have cooled the parts receive a final inspection before being packed for shipping. The operators who don't realign their machine have an acceptance rate of 99 out of 120. 9 Develop Standard Procedures to Improve Internal Yields Assessment Recommendation Summary Estimated Cost Savings = $95. He was taught how to do this by another operator but there is no company procedure to teach the newer operators how to realign the machines.753 / yr Estimated Implementation Cost = $60. Several of the more experienced operators are able to receive much higher incentives than the rest because of their larger acceptance rates. The average worker applies 120 gaskets an hour to the automotive parts and approximately 99 of the gaskets pass the final inspection. If the gaskets have any type of defect or did not mold properly to the part. Each worker that applies the gaskets receives incentives determined by the average amount of acceptable gaskets that they can attach per day. One operator explained that he is able to produce less defects because he realigns the machines before each of his shifts. The contracted rate the company receives for making and attaching the gaskets is an average of $0. The experienced workers do not offer to teach all the new operators because they feel it will hurt the incentives that they receive.67 years (8 months) Existing Practice The plant receives unfinished automotive parts from other companies and is contracted to make and attach rubber gaskets onto the different automotive parts.881 Estimated Payback Period = 0. re-melted. 63 . The gaskets are attached to the parts so the parts can be packaged and shipped to the retailers. All the gaskets that don't meet standards are recycled and all the parts without gaskets are cycled through the process until they receive an acceptable gasket. and remolded so that they can be re-applied to other parts.

The realignment alone will increase the acceptance rate of the gaskets by approximately 6 percent. However.ATB where.399 units/yr.Recommended Action Use the knowledge of the best machine technician to help reduce the internal scrap rate of gaskets for the less experienced operators. but if twenty percent of the gaskets have to be removed and re-melted. the internal defect rate (defects which occur within the process) was found to be about twenty percent for most operators.166 hrs/alignment)(105 units/hr) ATB = 199. The re-melting ensures that there is no wasted material. then twenty percent of the operator's time and the energy required to melt the rubber are wasted. units per hour IPR = (22) (2 shifts) (8 hours/day/shift) (260 days/yr) (105 -99)(units/hr) IPR = 549.)(0. Anticipated Savings The annual increased production. IPR = new production possible from increased rate IPR = NWS x NOS x HPS x DPY x (NPR . will be the increased amount of acceptable units per hour that the operators will be able to produce. API. This can be determined by the following equation: API = IPR . The company has a low shipped defect rate because it inspects every gasket before packaging and removes all the bad gaskets to be re-melted. Have the technician develop a company procedure for realigning the machines so all the operators can realign the machines before their shifts.OPR) NWS = number of workers per shift NOS = number of shifts operating HPS = number of hours per shift DPY = number of days per year in operation OPR = old average production rate. 64 .120 units per year ATB = annual production lost due to aligning machines before each shift ATB = NOS x NWS x DPY x TTA x NPR TTA = time required to align machine each time ATB = (2 shifts)(22 workers/shift)(260 days/yr. units per hour NPR = new average production rate.

There will be no additional labor needed to produce these additional units so the cost of the labor per unit will be zero.) . ACS = API x PPU x PM PPU = price received per unit of output PM = profit margin ACS = ( 349. It should be noted that the machine maintenance and energy costs per acceptable part will also decrease and contribute to the above savings. This will result in an increased profit margin. The cost of this production time can be determined as follows: PLI = PDT + TCP where PDT = production lost due to down time for training PDT = DPD x PPD DPD = number of days production will be down PPD = production per day 65 . we have neglected these extra savings.120 units per yr. Estimating the existing profit margin to be 10%.(199.74/unit) (37 % ) ACS = $95.Hence. Implementation The production lost due to implementation. PLI. will be the additional profit earned from the increased output of gaskets. In an effort to be conservative. will be the time that the production is down for the training of operators and the time the experienced operators need to create the standard operating procedures.) API = 349. The profit per gasket will now include the money that was budgeted to go toward the labor of the gasket because the additional gaskets have no labor costs. ACS. The annual total cost savings. the annual increased production will be: API = (549.753 / yr.721 units per yr.721 units/yr) ($0.399 units per yr. the profit on the additional gaskets was calculated to be 37% because of the absence of labor costs.

800 units PLI = 82.753 / yr. Payback Period = 0.) Payback Period = Implementation / API = $60.74/ unit) ITC = $60.67 years (8 months) 66 .PDT = (2 days) (32. ITC. the production lost from implementation is: PLI = 65.272 units The total cost of implementation.736 units/ day) PDT = 65. ITC = PLI x PPU ITC = ( 82.881 / $95.472 units TCP = production lost from operator working on standard procedures TCP = NOF x TPR x TWP NOF = number of operators working on procedures TPR = production rate for these operators TWP = time spent working on procedures TCP = (4 operators) ( 105 units / hr) (40 hrs) TCP = 16.472 units + 16.800 units Hence.881 (The number above is higher than the actual costs because it includes raw material and energy costs which wouldn’t be increased during production down time.272 units ) ($0. will be equal to the cost of the units lost.

There are. annual sales.000/hour $100.7 Estimated Downtime Costs for Selected Industries Forest Industries Food Processing Petroleum & Chemical Metal Casting Automotive $7. however. operating hours. etc. Examples of costs for downtimes in various industries are summarized in the following table. Evaluating Electric Motors. Ohio.000/hour Questions to Ask • Are there shutdowns of the production process? • Are these shutdowns unscheduled? • What are the duration and frequencies of these shutdowns? • What are the reasons for the unscheduled stoppages? • What is the cost/hour of production downtime? 7Revelt.Preventative/Predictive Maintenance (PM) Introduction There are many economic analyses which point out the value of PM but they are usually of a complexity and detail to make them useless for the IAC director during a one day audit. but we expect that the greatest cost savings will result from reduced downtime. 67 . raw material costs. Savings may be present in terms of reduced energy costs and repair costs from improved maintenance practices .000/hour $30. sub-categories of PM which can form the basis of useful recommendations and which can be presented in a way likely to provoke management into implementing them. These are ARs which can be related to unwanted shut downs of the assembly/production lines. Cleveland. These generally fall under the heading of risk management which is important to the manufacturer but difficult to properly assess during a one day audit. i. Jean. labor costs. Linclon Electric Company.000/hour $87.e. If the company cannot (will not) indicate the cost per hour of production downtime it can be easily estimated with normally obtained data.000/hour $200.

but asking questions may elicit an entirely different AR than the two we present here. Related ARs Two case studies are included under this heading. Since the shut-downs are usually documented by the line foreman or other management. it is possible to identify the cause of the shut-downs and their duration. The scheduled shut-downs should be investigated to see if they would benefit from "quick change" approaches.Symptoms/Indicators This type of recommendation will probably only be identified by discussion with plant personnel as the occurrence of an unscheduled shut-down while you are present is unlikely. The rewards for recommendations which can reduce or eliminate these shut-downs can be reported with some confidence and be logically defended. • ELIMINATE SHUT-DOWNS OF CONTROLS DUE TO OVERHEATING • TREND MOTOR TEMPERATURES AND VIBRATIONS LEVELS TO PREDICT MOTOR FAILURE 68 .

The minimum shutdown period consists of 15 minutes to re-start the computer and at least another 30 minutes to re-start the production line.e. The cost of lost production when a line is shut down is estimated to be about $632/hr per production line. Common engineering practice is to design cooling equipment to provide the desired room temperatures for 97. To avoid dust build-up in the cabinets. the cabinet is opened and a reset button must be pressed.Assessment Recommendation No.. There are two computer controls which are most susceptible to overheating shutdowns. a typical system is undersized and will not be able to maintain the 69 . the doors are closed as soon as the outdoor temperature is low enough for the HVAC system to maintain the desired room temperature. Both are located in the Process Control/Computer Room (see Figure 1). several computer systems “crashed” (shut down) because the internal temperature in the computer control cabinets exceeded the maximum allowable cabinet temperature. In addition. Once the problem is traced to the computer cabinet. One is referred to as the “516 Forming Controller” and the other is the “570 Electronic Commander.5% of the cooling hours.112/yr Estimated Implementation Cost = $812 Simple Payback Period = 0. According to a plant electrician. To prevent another shutdown. indicating that the cooling equipment for the room is undersized (no additional heat generating equipment has been added to the room).09 years (1 month) Existing Practice and Observation During the assessment visit. 10 Eliminate Shutdowns of Controls Due to Overheating Assessment Recommendation Summary Estimated Productivity Savings = 16 hrs/yr Estimated Cost Savings = $10. about 16 hours of production line shutdowns were caused by these cabinets overheating in 1995. these controls shut down whenever the internal temperature in the cabinets exceed 85˚F.” According to a plant electrician. for 2. This problem has existed during very hot weather since the systems were installed. the associated production line stops. the doors to the cabinet are left open and fans are placed in the room until the room temperature becomes cool enough to allow the cabinet doors to be closed again. This results in even longer production shutdowns of up to 7 hours.5% of the cooling season (i. the computer sometimes shuts down during second or third shift when the available staff is not trained to fix the problem. When these controls shut down.

Anticipated Savings The annual cost savings. can be calculated as follows: ACS = ALPT x SLR where. A list of these staff members.desired room temperatures). Recommended Action Eliminate costly production shutdowns due to overheating computer control cabinets by installing temperature sensors and warning lights on the cabinets. the warning light will flash indicating to the technicians in the control room that the cabinet should be opened in order to prevent a production shutdown. the sensor can be installed inside the cabinet and wired to a warning light which can be installed on the cabinet exterior (or another. This will minimize lost production time. A more expensive solution would be to install additional cooling equipment to ensure that the room remains cool enough during all hours of the year. The existing cooling equipment may have been sized in this manner. neglecting the potential costs in lost production caused by the room overheating. ALPT = annual lost production time due to overheated computer controls (for all production lines combined). A standard operating procedure should be written by personnel on the electrical staff who are presently trained to deal with these problems. should be attached to the cabinets to minimize time wasted searching for someone who is qualified to correct the problem. When this temperature is exceeded. This procedure should be presented to all qualified staff who may be in the facility when this problem arises. The sensor can be set to send a signal to the warning light when the internal temperature of the cabinet exceeds 80˚F. In addition to either of the recommendations above. $/hr (per production line) 70 . more visually noticeable location). control room personnel or someone on the electrical staff for all shifts should be trained on how to get the computer system back on-line whenever a shutdown due to overheating occurs. ACS. hrs/yr SLR = shutdown loss rate. Since the shutdowns are said to occur when the internal cabinet temperature exceeds 85˚F.

a 5 amp relay. Payback Period = (Implementation Cost) / ACS = ($812) / ($10. and an AC/DC voltage adapter.1 years (about 1 month) As mentioned previously. or 2) rearranging the cooling system supply and return air ducts to provide more efficient cooling. 71 . The bottom line is: the control shutdowns are economically avoidable and there are a number of options available. Other feasible options may include: 1) increasing the cooling capacity of the existing cooling system (install an additional cooling unit). This system is shown on the following page. or $165 per system. The estimated installation for each system will require about 6 hours at $27.50 per hour. implementation of the overheating warning system will require the purchase and installation of a temperature sensor. Unit Cost $115 $86 $15 $25 $165 $406 No.112/yr Implementation For each of the two computer control cabinets. These options would be more expensive than the proposed warning system but would likely also result in a return on the invested capital in less than two years. a warning beacon. there are other alternatives to solving this problem and eliminating costly production shutdowns which occur as a result of overheated computer controls.112/yr) Payback Period = 0. ACS ACS = (16 hr/yr)($632/hr) = $10.Thus. The material costs for these items are shown in the table below. The resulting total approximated installation cost is $812. of Warning Systems Needed 2 2 2 2 2 2 Total Cost $230 $172 $30 $50 $330 $812 Item Description Temperature Sensor Warning Beacon 5 Amp Relay AC/DC voltage adapter Labor (6 man-hours) Total Hence.

4 C Warning Beacon Computer Control Cabinet Computer Control Cabinet 72 .Proposed Warning System Ac/ Dc voltage adaptor (power supply ) 5 Amp relay switch Temperature Sensor 69.

Anticipated Savings Cost savings can result from three areas: 1) Reduced un-planned process downtime. and motors are repaired only when failure occurs. and the furnace air supply fans. and 3) Reduced motor electricity costs. Recommended Action Establish a predictive/preventive maintenance program which will include periodically cleaning equipment and taking measurements on critical process equipment which will indicate potential problems and allow the scheduling of maintenance and repairs to a convenient time. thus allowing the avoidance of costly process downtime.353/yr Estimated Implementation Cost = $4. 11 Begin a Predictive / Preventive Maintenance Program Assessment Recommendation Summary Estimated Cost Savings = $21. etc.2 years (about 2 months) Existing Practice and Observation Presently.Assessment Recommendation No. 2) Reduced motor rewind costs. Savings for each of the above were estimated as follows: 73 . As a result. cooling fans.). The combined ratings of these motors total 3. there are about 20 motors which are critical to production operations.350 hp. In addition. very little preventive maintenance is performed at the facility due to a stated lack of manpower. some motors and process equipment were observed to be very dirty and poorly maintained. motors and process equipment operate in a very hot environment which contributes to shortened component lives and equipment failure rates which are higher than normal .200 Simple Payback Period = 0. An outside consultant can be hired to perform periodic measurements and/or organize and train your staff to perform them. Neglecting small motors (conveyor motors. including air compressors. These factors combine to result in unexpected (and costly) process downtimes.

. + N800 x RWC800 ) / NT where Nn RWCn NT = number of motors at the facility with horsepower “n”. . motor replacement could take much longer. it takes about 8 hours to remove and replace a failed production motor. no units 74 . It is assumed that similar results can be achieved at this facility.) = (3 failures/yr) x (8 hrs/failure) x ($632/hr) Production Cost Savings = $15. Cost of Rewind = ( N40 x RWC40 + . labor union requirements. and 7) restarting the process line. and the nature of the production line. including: 1) accessing the motor. no units = total number of motors (considered in this analysis) at the facility. x (Cost of Lost Prod. .168/yr 2) Reduced motor rewind costs. the table below was used to obtain an average cost per motor repair for both the existing maintenance methods and after a preventive maintenance program has been established. Since records of motor repairs and costs were not available. no units = estimated cost of rewinding a motor with horsepower “n”. 5) acquiring the replacement motor. + Nn x RWCn + . Using 8 hours per replacement. 6) installing and aligning the replacement. .1) Reduced Un-Planned Production Downtime: According to a survey of maintenance references and consultants. Depending on the size of the motor. After preventive maintenance programs were established. . availability of a replacement motor. Utility representatives have indicated that in a survey of facilities with no preventive maintenance programs. the estimated production cost savings due to implementing a preventive maintenance program is: Production Cost Savings = (Motor Failures/yr) x (Lost Prod. 2) electrical disconnection. . 4) motor removal. Time/Failure) . the number of rewinds was reduced to about 20% of the total. and assuming there are 3 un-planned motor failures per year on critical process motors. 3) unbolting. motor rewinds represented 85% of the total number of motor repairs (on average). The average cost of a motor rewind for this facility was estimated as: Ave.

M. Energy Efficient Motor Systems. M. Katz.258/rewind Existing Average Repair Cost per Motor = $2.M..032/repair and after a preventive maintenance (P... Existing Average Repair Cost per Motor = 0. p. Repair Costs = (Motors Repaired/yr) x (Average Repair Cost) P. etc.20 x $2.M.944 $5.915 $7. = $1. alignment.735 The average cost of reconditioning (bearing replacement.) a motor for this facility was estimated similarly. cleaning.157 $1. Assuming the cost of rewinding a motor is 3 times that of reconditioning a motor.212/yr 8 9 Nadel.053/motor) = $4. hp 40 60 75 100 125 250 800 Cost of Rewind 8 $1.258/rewind Estimated Average Cost of Reconditioning a Motor (for this facility) = $752/recondition Then.500 $1.578 Recondition vs.258/rewind Average Repair Cost per Motor with P. S.128/yr and the repair costs after implementing a P. S.020 Cost of Reconditioning 9 $340 $431 $500 $536 $606 $971 $2.074 $1.15 x $752/recondition + 0. G.. the existing repair costs are estimated as: Existing Repair Costs = (Motors Repaired/yr) x (Average Repair Cost) Existing Repair Costs = (4 motors/year)($2. and de Almeida.M.80 x $752/recondition + 0. program are estimated as: P.053/repair For four motor repairs per year. Average Repair Cost per Motor with P.032/motor) = $8. Repair Costs = (4 motors/year)($1.000 $1.) program is established. varnishing.M. Greenberg.820 $2. The results for both are: Estimated Average Cost of a Motor Rewind (for this facility) = $2..Motor Size.M. 75 .214 $1.85 x $2. 264.610 $1.295 $1. Shepard. A. Rewind Premium $680 $864 $1. = 0.

vibration.212/yr = $3.M.$4.887 kWh/yr) x ($0. . the annual reduced motor repair costs are estimated as: Reduced Repair Costs = Existing Repair Costs .P.746 kW/hp) x (Elec. Cases have been documented where the efficiency improvement resulting from improved maintenance practices was as high as 10-15%.128/yr .746 kW/hp) x ($0.02) x (0. and will assume these savings to be 2%. . Among other factors. Usage Cost) = (3. program.350 hp) x (0.75) x (8400 hr/yr) x (0. Repair Costs Reduced Repair Costs = $8.0308/kWh) Energy Cost Savings = $9. .783/yr 76 . we recognize that efficiency improvements would most likely occur as a result of implementing a P.Hence.699/yr Total Cost Savings: The total estimated annual cost savings provided by instituting a preventive maintenance program for your motor systems is: Total Cost Savings = Production Cost Savings + Reduced Repair Costs + Energy Cost Savings Total Cost Savings = $15.916/yr 3) Reduced Motor Electricity Costs. x (Percent Savings) x (0.M. power.699/yr = $28.0308/kWh) = (314. .168/yr + $3. including voltage. these savings could result from: • Improved lubrication • Proper alignment and balancing • Correction of voltage imbalances • Reduced motor temperatures • Reduced efficiency losses caused by motor rewinds and failures • Improved drive system performance Energy savings are estimated as: Energy Cost Savings = (Total hp of Motors Considered) x (Load Factor) x (Operating Hours) .916/yr + $9. and temperature measurements. Although it is difficult to accurately estimate motor system efficiency improvements which are achievable in your facility without performing a complete survey of the motor systems.

96/man-hour) = $6. respectively. The continuing investment is estimated to be $6.430/yr and the initial investment is estimated to be $3.200 = $4.230/yr. The above costs are of two types: 1) initial investment. and 2) continuing investment. The consulting rate is about $600 per day. The bi-annual inspections would each require one day and.2 years (about 2 months) 77 .783/yr . Subtracting the continuing investment from the total cost savings yields: Net Cost Savings = $28.200/yr = $7. but it is assumed that over time these costs will be negligible in comparison to benefits resulting from reduced repair costs and increased operating efficiencies.000 + $1. the in-house labor costs would be (1 hrs/month/motor) x (20 motors) x (12 month/yr) x ($25.Implementation The costs of implementing a preventive maintenance program were estimated as follows: 1) In-house Labor: Estimating that it would require 2 hours of an electrician’s time per month per motor to perform preventive maintenance procedures.200) / ($21. Additional material costs for items such as filters and lubrication will be greater than normal initially. The initial training is estimated to require 5 days at $600/day. The electrical instrumentation required should already be a part of the existing instrument supply.353/yr The simple payback period for implementing a motor preventive maintenance program would be: Payback = ($4.430/yr = $21.230/yr + $1. together.353/yr) = 0.$7.200. would cost $1200/yr. 3) Consulting Costs: It is assumed that a preventive maintenance consultant will be required to provide initial support and training for the program. then provide on-going inspections bi-annually. 2) Materials: A vibration meter and temperature probe can each be purchased for about $1000 and $200. for a total of $3000. and about 30 motors can be diagnosed per consulting day.


Labor Optimization
Labor cost saving opportunities arise when worker’s Time or Skills Are UnderUtilized. Many factories have operations that have remained unchanged for decades. Workers are performing tasks better performed by automated equipment, such as inspecting or packaging. Some are being asked to move product excessive distances, wasting time and labor dollars. Ineffective production leads to a disinterested, discouraged and inefficient work force. Workers perform less than ideally when (they feel) their efforts have little or no effect on the result. Examples of this include unclear definitions of defects, duplicative inspection, and equipment that goes out of adjustment as soon as it is corrected. In order to apply new technologies, workers need to be trained in their operation. Training of the existing work force can meet company's needs without the expense of hiring of new personnel. Manufacturers sometimes have idle workers because work rules don't allow them to perform different tasks. It is not uncommon to find manufacturers that are not keeping up with maintenance, because the maintenance crew is busy "putting out fires"; yet other workers have time to spare. Some of these firms are even in a hiring mode, intending to introduce more skilled labor while existing personnel are under-utilized. This is particularly troublesome when the firm does not need full time help. In these cases, many companies will run overtime shifts to meet production levels. Development of Standard Operating Procedures will allow manufacturers to demystify the process/procedure and train or cross-train existing personnel to perform needed operations efficiently. Particular attention should be paid to the employee who is an "artist" or an "expert". The existence and acceptance of this practice is a guarantee of variance in production, and an obstacle to training personnel. For example, a factory that had "expert" set-up men who took as much as eight hours to get a process running acceptably. When asked what the particular settings were, they responded that there were no dials for the settings, and those settings were not prescribed, but adjusted by "feel.” After the set-up was standardized and the company conducted training courses, other workers were able to set up the process in half the time, markedly increasing the yield of the production line. Counterproductive Incentives have also been a culprit in the effort to optimize labor. Arguments about which end of the line produced a defect, and incentives that encourage an employee to keep "secrets" of production to himself/herself are common. Elimination or modification of the incentive in doubt will allow all workers to share a common goal, increased 79

quality production, and encourage sharing of successful experiences. Piece-work is a particularly insidious danger. A manufacturer of cast steel valves for the nuclear power industry had three separate operations performed on the part before checking to see if the casting was acceptable. The reason? The machinists got paid for piece-work. If these machinists had only worked on good castings, the production rate of the factory would have increased dramatically, reducing the labor cost, and therefore the overall cost of a piece. Most workers, if given the proper information and tools, would prefer to produce a quality product.

• What percentage of the cost of production is labor? Direct / Indirect? • What is the pay scale? • What is the pay premium for second and third shifts? • Do you run overtime due to the lack of skilled personnel? • What is the cost of overtime? • Is this a union shop? • Do you ever work overtime to meet production goals? Why? • Are you lacking labor in a particular skill? • Are you keeping up with preventative maintenance?

• Idle workers, machines, or tools • Ineffective production, or operations • Excessive transportation or motion (walking, etc.) • Excessive hand labor

Related ARs


Assessment Recommendation No. 12 Install Automated Glassware Packing Equipment Assessment Recommendation Summary Estimated Cost Savings = $1,109,432/yr Estimated Implementation Cost = $1,600,000 Simple Payback Period = 1.44 years (17 months)

Existing Practice and Observation Various grades (qualities) of glass are sold, with the quality depending on the customer’s standards. The following table is a breakdown of the percentage of total production for each glass quality grade at this facility during the month prior our assessment, including the percentage of bottles packaged for each grade. Selection (Grade) A+ A B+ B C+ C CTotals Percent of Sales 0.17 0.55 22.30 41.49 1.66 33.19 0.64 100% Percent Packaged 49.19 46.70 59.44 57.08 71.31 67.38 70.59 61.3%

Presently, 100% of the glassware exiting the Lehrs is manually inspected and packed. According to management personnel in the quality assurance department, glassware requiring a grade quality of “B” or lower could be packaged by automatic packaging machines--this is the method used in some other cosmetic glassware manufacturing facilities. According to the table above, about 77% of the products sold during the month prior to our assessment could have been packaged using an automatic packing machine.


The present actions of each inspector/packer include: 1) removing the glassware from the conveyor, 2) examining the glassware for small cracks by holding it in front of a light at various angles, 3) placing the good pieces in boxes for shipping and the rejected pieces back on the conveyor to be dumped onto the cullet collection piles in the basement, 4) taping or gluing the filled boxes shut, and 5) retrieving new boxes and packaging materials. Because many of the defects are very small and would be difficult to consistently and reliably detect automatically using optical sensors, 100% manual inspection is believed by management to be a “necessary evil” to ensure that only quality products are shipped to customers. However, the inspecting process occupies less than 50% of the time of an inspector/packer. Almost half of the company’s employees work in the cold room inspecting and packaging operations (289 out of 600 employees). According to management personnel in the quality assurance department, inspector/packers are assigned to each production line according to the speed of the production line. It is estimated (by management) that each person can inspect 22 to 25 pieces per minute, and the typical production line has at least 4 inspector/packers working at a time. As many as 7 inspector/packers at a time are assigned to the faster lines. Furnace #7 and the four connected production lines are used primarily to produce the high volume/lower grade (quality) products which would be best suited for automatic packing. In addition, plans have been made to increase the capacity (tons/day) of furnace #7 in the near future, making the installation of automatic packers even more attractive Recommended Action Install automatic glassware packaging machines on the Furnace #7 production lines.

Since the small nature of many of the common defects are thought to necessitate manual inspections, the value of the inspector/packer’s time should be maximized by using them primarily to inspect glassware. With a case packer installed, the workers on the conveyor line will be able to devote most of their time to the valuable inspecting process. 82

or 0.500/yr. Adjustments will be necessary when the number of pieces per box.96/hr. based on $40. the equivalent hourly rate of a skilled packing machine set-up technician is assumed to be $25. one on each of the #7 furnace production lines. This assumption is based on installing the packing machines on the lines which produce the high volume/lower quality glassware. It is assumed that a properly designed packaging machine will be capable of eliminating at least half of the present labor efforts (or nearly all of the present packaging labor).35 x $30.5 x 4 workers/line = 2 workers/line. each re-adjustment will require 30 minutes of a skilled operator’s time. The average annual earnings for an inspector/packer is $30. and each shape change will require the packaging machine to be re-adjusted. for four shifts. Also.000 and.000/yr with a 35% overhead rate.Anticipated Savings This analysis includes the following assumptions: • Four packaging machines will be installed. layers per box. the annual cost to the company for each inspector/packer is 1. based on interviews with management in the quality assurance department and observations during our on-site assessment. or box size changes. This is viewed to be a conservative assumption. There are approximately 6 shape changes per production line per month. Of course. with an overhead rate of 35%. personnel in the quality assurance department at the facility felt that a reduction from 7 to 3 workers on one line would be reasonable. The typical number of inspector/packers presently working on each production line is 4. only one machine should be installed initially to allow a performance evaluation and design improvement period. More than 50% of the inspector/packers’ time is presently spent performing actions associated with packaging. After the initial system has been properly adjusted and has proven its worth. piece shape and size. • • • 83 . the remaining machines should be installed. Based on previous experience with similar packaging equipment in similar applications. According to manufacturer’s literature. Each packaging machine will allow the re-assignment of two laborers per shift.000/yr = $40.

each machine requires a maximum of 10 kW of electric heat for the hot-melt box closing system and 50 cfm of 100 psig compressed air.39/kW-month EUR = average cost of electricity usage.MSC x (12 months/yr) x ST x THR .746 kW/hp HRS = annual hours of operation. 0. units = shifts = annual cost per laborer. 0. clearing an occasional jam.50 (no units) Vf = volumetric flow of air to a packing machine.0308/kWh 84 .The annual cost savings. scfm HP = power required for a centrifugal compressor to produce compressed air at 100 psig. units = changes/month/line = packing machine set-up time per shape change. units = hr/change = hourly rate for a packing machine set-up technician. These savings were estimated as follows: ACS = NP x [ LE x NS x CPL . may be estimated using the following equation: MEC = [ KW x UF + Vf x HP x K ] x [ EDR x (12 months/yr) + HRS x EUR ] where KW = rating of electric heaters. achieved by installing automatic packaging equipment will be due to avoiding labor expenses which are required when the products are packaged manually. units = $/yr According to manufacturer’s information. The annual electric operating cost for each packing machine. units = people/line/shift = labor required for operating a packing machine. ACS. $0. units = people/line/shift = number of shifts during which the packer would be used. etc. the electric heaters are on about 50% of the time. 0. units = $/hr = annual electric operating cost for a packing machine. $10. MEC.MOC] where NP LE MLR NS CPL MSC ST THR MEC = number of automated packers to be installed. During normal operation. manual operation of a packing machine is estimated to take 25% of a laborer’s time (for keeping the machines loaded with cardboard and glue. In addition. no units = laborer equivalence for each automatic packer (number of laborers it would take to perform the work of one automated packer). 8400 hrs/yr EDR = average cost of electric demand.). no units UF = usage fraction for electric heaters (fraction of time operating).23 hp/scfm K = conversion constant. units = $/yr/person = monthly shape changes per production line.

500) .39)(12) + (8400)(0. 10 Supermatic Package Machinery Inc. glue or tape the box closed. This additional expense has been considered and is included in the estimated implementation costs.0308/kWh) ] = [ ($1.96) .5)(25.($5.23)(0. 85 .513/yr) ] MEC = $5. Adjustability is required for this application due to the variety of sizes and shapes of glassware which are manufactured on each production line.MLR) x NS x CPL . Fairfield.746) ] x [ (10. The conveyors which presently extend from the Lehr exits to the opening of the cullet trenches will most likely need to be replaced or supplemented by conveyors designed to properly feed the automatic packing machine. include corrugated spacers between the glassware.($935/yr) .25)(4)(40.(6)(12)(0.. MEC = [ (10)(0.Substituting the appropriate values.MEC] = (4)[ (2 .064 kWh/yr)($0.0308) ] = [ (163 kW-month/yr)($10. NJ. and eject the packed box onto a finished goods conveyor. the estimated annual cost savings can be calculated as follows: ACS = NP x [ ( LE .207/yr Thus.358/yr) ] ACS = $1.694/yr) + ($3.10 Case packers are commonly used in the glass container and cosmetics industries and machines are available which have the capability of being used for a wide range of products.500/yr) . (201)575-6350.207/yr) ] = (4)[ ($277. organize the inspected bottles into the desired grid.39/kW-month) + (114. pack the glassware in the boxes in single or multiple layers.207) ] = (4)[ ($283.432/yr Implementation Case packers are available which can perform all of the following operations: • • • • • • construct the boxes.MSC x (12 months/yr) x ST x THR .0.50) + (50)(0.(5.109.

4 yrs (17 months) Automatic inspection/rejection methods should also be considered when designing the new packaging and conveyor system. or 2) for the products with lower quality requirements. According to data obtained from the quality assurance department. Each company will custom design their machinery to fit a specific customer’s needs and will test their equipment using the customer’s products before shipping the equipment to the customer. Fairfield.000. Garvey Corporation. 24. Installation of the equipment can also be performed by technicians from the equipment vendors.000 and the total cost for installing the packaging systems on 4 production lines would be about $1. determine if containers are acceptable. (201)575-6350. Installed cost of a fully adjustable case packer capable of packaging glassware in multiple layers of 12..600. 86 . based on descriptions of the existing conditions at this facility.Manufacturers of case packers11 and conveyor systems12 which are commonly used in the cosmetics industry were contacted.000)/($1. requiring manual inspections only for detecting small scale defects which can’t be detected automatically.000. about 40% of the rejects have large scale defects which would be detectable by optical inspection devices.432/yr) = 1. Estimates of implementation costs were obtained from equipment manufacturers. Blue Anchor. The simple payback period would be: Payback = (Imp Cost)/(Cost Savings) = ($1. The installed cost for the conveyor system was estimated to be about $50. 11 12 Supermatic Package Machinery Inc. NJ.109. So the installed cost per line will be about $400. optical inspection systems could be used to automatically : 1) reject glassware with large defects. This could provide additional savings by reducing the manual labor required for inspecting. or 48 bottles per layer was estimated to be about $350. 36. By using a conveyor system which takes the rows of glassware exiting the Lehr and removes them in single file lines. NJ.000. Savings and implementation costs for automatic inspecting have not been considered in this recommendation. (800)257-8581.600.

The linkage would consist of a magazine between the two machines that would automatically shut down the first machine when the storage area in the magazine exceeded 100 light bulbs and automatically turn it back on when there are only ten light bulbs left in the magazine. Machine A can operate at an output level of 5. Machine A is in operation for about 95% of the production operation time (based on interviews and observations).07 years (less than one month) Existing Practice and Observation Presently the process of assembling light bulbs is performed by four workers and two machines.690 Simple Payback Period = 0. Recommended Action Replace the present process of transporting the light bulbs from machine A to the storage area and back to machine B by linking the two machines together. This will compensate for the different production rates of the two pieces of machinery. This machine then takes the materials needed to assemble the mouthpiece of the light bulb and attaches the mouth piece to the light housing. The production line is in operation for about 4992 hrs / year and machine B is in operation for all of this time. The semi-finished products remain in this area until worker 3 transports them to machine B where they are loaded into the machine by worker 3. an excess of unfinished inventory is created by machine A. Machine B then finishes the product and packages it for sale. 13 Install Magazine Between Machines to Reduce Costs Assessment Recommendation Summary Estimated Cost Savings = $211. Once the product is finished by machine B. The first step in the assembly of the light bulbs is feeding the materials into machine A by worker number 1. Presently. The output from machine A is then stocked on pallets and transferred to a temporary storage area by worker 2.72 units/minute and machine B can operate at 5. Estimated Implementation Cost = $14. When both machines are operating at full capacity. The installation of the magazine will reduce labor 87 .Assessment Recommendation No.2 units/minute.704 /yr. machine A is periodically shut down while machine B reduces excess inventory. For this reason. the fourth worker transfers the light bulbs to the pallets and takes the pallets to the finished product storage area. about 5% of the bulbs received by Machine B are defective. The bulbs are taken to the storage room because machine A has a higher output rate than machine B and an overflow supply of bulbs will begin to develop between the two machines.

$19. In addition.560.MPLA) x HRS x CPH where HRS = annual hours of operation.47 /hr) AMHS = $194. This is possible due to the replacement of the 4% defects rate caused by the intermediate transportation with an estimated 1% defect rate caused by the magazine. The annual savings from reduction of defects. AMHS.37 88 . the defects which occurred from the extra packing and transportation of the bulbs will be reduced. AMHS = (MPLB . Anticipated Savings The annual reduction of man hours savings.) x ($19.388 /yr. Workers estimated that less that one percent of the light bulbs produced by machine A are defective. ADS.2) x (4992 hrs/yr.requirements of this operation by eliminating the need for the two workers who are presently required to transport the light bulbs between machines.NDR) where UPY = units produced per year.000 bulbs ODR = old defect rate. 2 AMHS = (4 . 4 MPLA = workers per line after implementation. freeing that area for other uses. is the reduction of two workers that are needed to work the production line. 4992 hrs/yr. 1.47 MPLB = workers per line before implementation. 2% CPU = average value per unit (bulb). ADS = UPY x CPU x (ODR . is the savings seen from the decrease of the defect rate from the estimated present amount of 5% to about 2%. $0. CPH = cost per hour for workers (including fringe). Then that at least 80% of the defects come from either the transportation process or removing the bulbs from the machine. There will also be no more need for the temporary storage area that was previously required to house unfinished bulbs. 5% NDR = new defect rate.

The design and construction of the magazine can be contracted to a conveyor manufacturer company and will cost approximately $9.704 /yr. This equipment will no longer be required.690.) x ($0.02) ADS = $17.690 / $211.07 years ( less than one month ) 89 .05 . Implementation Implementation requires the design.+ $17. ACS. construction. The total annual cost savings.37/bulb ) x (0. ACS = $211. is then due to the sum of the reduction of man hours savings and the reduction of defects savings. Hence the total installed cost would be $14.316 /yr.560.388 /yr. The existing transportation of bulbs to the storage area and back requires equipment that needs to be fueled and maintained daily. ACS = AMHS + ADS ACS = $194. The simple payback period can be calculated with the following equation: Payback Period = Implementation cost / ACS = $14. The installation of the magazine will require two steps: the arrangement of the machinery and the connection of the magazine.000. and the respective costs are estimated as $3340 and $2350. It should also be noted that there will be additional indeterminable savings from the reduction in transportation costs and reduction of storage space that is required. or may be used for other purposes.704 Payback Period = 0.0. and installation of the magazine.316 /yr.ADS = (1. and can be calculated with the following equation.000 bulbs/yr.

The product is expensively priced. There is a constant backlog on received orders because the lamps are not produced fast enough. 90 . The sale volume is not very high relative to sales in dollars because the company caters to a niche market. Normally.Assessment Recommendation No. However. Existing Practice and Observation The company cannot satisfy all demands of the market.000 Simple Payback Period = 0. Rotation of the operators should be established as a practice. when somebody takes a sick day or other leave of absence there is enough work to be finished that it doesn't cause any problems. reflection of occasional slower production caused by the lack of trained personnel is calculated into this number) when the production has to be diverted into auxiliary work or workers are asked to go home because the key employee is missing and the job cannot be finished. 14 Cross-Train Existing Personnel to Avoid Lost Time Assessment Recommendation Summary Estimated Cost Savings = $24.42 years (about 5 months) Background The company is a manufacturer of luxury light fixtures. Discussions with the supervisor revealed that the company looses approximately 5 work days every year when employees are absent due to sick leaves or other reasons. We assume that the training can be accomplished in after work hours. There is only one shift operation at this time and because of special high level skills required the company is not successful in finding people for a possible second shift.000. thus without any loss to production but with pay to the employees. The production is not fully automated and depends on skills of different operators or craftsmen. We propose that the company provides this training of employees on a regular basis to keep all the operators up to date all the time.000. there are days (on the average 5 a year. Recommended Action Cross train all the employees in different aspects of the manufacturing process so there is always somebody available with the skills necessary to keep the production running. The sales are about $17.000/year Estimated Implementation Cost = $10.

) People Involved = 13 Annual Time Allocated for Training = 1 week Number of Operators to Be Trained = 10 Cost of Training = (13 people) x (40 hours) x ($50.000) = 0.Anticipated Savings Realized Profit = $10.000 Simple Payback = ($10.000/year Implementation There is very little cost associated with the original planning and scheduling of the training. we believe that it is very conservative number.00/hr (For the purpose of this calculation we consider $50.00/hr Cost to the Company = ($50.000/yr) = $24.4 fringe benefit) = $70.($26.00/hr) x (1.000.00/hr rate. If we estimate the total cost of such activity as $10. since that is the direct cost to the company.000/day Labor Rate = $50.000/yr ES = [($10.000/day) x (5 days)] .00/hr) = $26. Implementation Cost = $10.42 years = (approximately 5 months) 91 . Fringe benefits will be paid regardless.000) / ($24.

92 .


94 . While scheduling production runs in order to keep a constant throughput is a complicated matter beyond the scope of a one day assessment. the cleaning operations must be performed very thoroughly and their partial elimination would lead to significant savings. What we would like to address here is something which can be done in one day visit. The purpose of scheduling of all production runs is to produce parts as cheaply as possible. We can use as an example painting or printing operations. The calculations involved also demand more time to process and in most cases extensive computer programming is a significant part of such undertakings as well. In some cases the reorganization of work schedules could be helpful. If performed in all sequential operations for one part or product. A case like that calls for either speeding up the whole production. Scheduling and Just-in-time are closely related. Of course.Scheduling Introduction Scheduling we want to introduce is not a scientific discipline studied by industrial engineers. the basic ideas related to scheduling in a JIT environment can be evaluated and conveyed by an assessor within the time frame given. The first type of scheduling recommendations could involve better planning in cases when changeover of certain types are involved. however. steps like that involve hiring more people and thus are a considerable expense to the company. it can free up precious resources of the company. or adding a new work shift for achieving the desired output per day. sequencing of operations. if the potential profit justifies the expansion. In painting operations it is typically cleaning of the paint guns. In one day assessment it would be extremely difficult to be able to collect all the data required for detailed calculation of optimum batch sizes. keep the work load more or less constant. Better sequencing of runs from light to dark color can eliminate cleaning operations during color changes. which might be quite beyond a scope of one day audit. Since the lighter colors are effected by the darker ones to a large degree. The illustration of this concept is documented by the "Machine Shop Scheduling" case study. It would usually involve cases in which the company knows that the market for their product exists. and deliver parts quickly to their destination. we feel it is a step in the right direction. As the second example of schedule changes within production we can introduce a concept of elimination of waiting for batches of products. in printing houses it would be cleaning of cylinder blankets or spray jets. and so on.

That would mean only two job lots per machinist. Sometimes the lead times are in weeks. After extrusion there is a trimming operation.. the ideal ratio is 1:1. The third ratio is number of pieces to number of work stations or operators in a line segment. To make useful and quick analysis of a process it is possible to use ratio analysis. The ratio is 10:1 and indicates that a better scheduling of jobs is necessary. Every idle piece. The lot consists of 10 000 parts which have to be extruded. We will illustrate the concept using the case from the machine shop. There are one hundred different lots to be processed and ten machinists to do the job. If the average job takes five weeks when the ratio is 10:1.Just-in-time is usually associated with lead times for a manufactured product. at the most in hours. which also includes setup times. we can consider a component at the next manufacturing operation. the lead time could be shortened to the time necessary for the process. every pallet with parts waiting or being delivered long distances raises this ratio. instead of the sales rate of the finished final product. even 1:1000. As an illustration we can use an example from a plastic parts manufacturer. This is not an average output rate. down time. The second ratio is speed of the process to sales rate. If the trimming machine is moved to a physical proximity of the extrusion machine. The first ratio is production lead time to work content. but the actual time when the part is worked on can be counted in minutes. breaks. This ratio can also be used to analyze office work. JIT can be applied in between different production steps. the lead time for the next operation is just that long. That is ideal and for practical purposes we would be satisfied with ratios in single digits. or. This example also shows that there is not a magic easy way to classify the problems of productivity since the same example could be used in the "Floor Layout" section. etc. At the shorter ratio each actual job processing takes the same amount of time as before. Trimming takes just three seconds but because of the lot arrangement it takes almost eight and a half hours before the last part is trimmed. Consequently. If we are talking about two operations within the process. ninety lots are idle waiting their turn while only ten are worked on. then our target ratios are the times that these two processes take. In other words. 95 . If we extend the concept. but waiting time is cut five times. we have to wait only the time which is necessary to produce that one part. the average would be only one week if the ratio were shortened to 2:1. The ratio applies to a single part only. in other words to get the part. Of course. But we can see quite commonly ratios of 1:100. At this point the close relationship to traditional scheduling of production runs becomes obvious.

A good example could be baking of enamel paints. • Do you use push or pull system in your manufacturing process? • If overhead cost is too high. A lot of movement of parts using fork lifts is an indication of either bad scheduling. such as cleaning.There are specific manufacturing processes. On the other hand. The ratio differences with and without baking are enormous. why? • Does your product experience multiple handling or multiple inspections? Symptoms/Indicators Excess inventory and especially in-process inventory are good indicators that it should be possible to reduce both by better scheduling. Questions to Ask • Do you have operations where different sequencing of job would eliminate some nonvalue added operations. • Identify processes or operations which you feel are more costly than they should be. where items are pushed through production) are most likely inefficient. The companies should be concentrating on using a pull system (production is based on orders received). However. or both. there is obviously an opportunity to shorten the bake time. That is not to say that we perceive such a change as trivial. overtime)? • Ask questions about ratio indicators. identify these operations. or exposure for a specific time to a specific substance.? If the answer is YES. number of shifts. What would be the right sequencing to eliminate these operations? • Do you have large size batch operations? • What are typical leading times for your products? ("product" could also be object for the next operation) • What is the company's operating schedule (including vacations. melting. The reduction might not be possible if the process cannot be modified or replaced with equally satisfying treatment but shorter in duration. poor floor layout. the ratio gives us a hint of where a significant potential for a reduction in time for the manufacture of a painted part exists. where long times involve annealing. Related ARs • OPTIMIZE LOT SIZES TO MINIMIZE INVENTORY CARRYING COSTS • SCHEDULING PRODUCTION RUNS TO MINIMIZE SET-UP TIMES • ADD A SECOND PRODUCTION SHIFT 96 . setups etc. During those times the piece is only indirectly worked on and the lead time is long. Push systems (speculative production.

The company also makes other gear sets which are sold to different gear box manufacturers but also as individual units from a catalogue. to process all forty. based on the size. too. This way the batch operation is completely eliminated. and the operator does not have to attend the machine during those twelve minutes. but the real machining time is only twelve.500. The shop processes forty gears per lot.Assessment Recommendation No. It takes twelve minutes to drill and bore each gear. he can pick up the next gear from the previous operation and have it ready when the gear on the machine is finished. The lead time for the fortieth gear is apparently 480 minutes. From that we see that the waiting time of 480 minutes is valid for all the gears. The sales of the company are $27.524/year Estimated Implementation Cost = None Simple Payback Period = Immediate Background The machine shop performs all machining operations for steel pinion gears. but on the average it is estimated to be $11. Since the gear which is machined right now was at one point the fortieth in the waiting line. it. Existing Practice and Observation The company has a one week lead time for any size gear manufactured. 480 minutes represents one shift and we certainly can say also one banking day. The company then sells the gears to A gear box manufacturer. which totals eight hours. Recommended Action The recommended action is based on the idea that in-process inventory costs the company money.000. 15 Optimize Lot Sizes to Reduce Inventory Carrying Costs Assessment Recommendation Summary Estimated Cost Savings = $61. had to wait forty minutes for twelve minutes of machining.000. On the average the company processes 370 lots of gears per year. one shift. 97 . The manufacturing of one gear consists of a hobbing operation from raw material and then drilling and boring operation for the bore. Since the boring of the gear takes twelve minutes. The value of these forty gears varies.

000 batch is around the whole year as in-process inventory which costs the company at least the money lost to other investments. etc.000 Since the company processes 370 lots a year and 480 minutes represent one day in terms of banking hours.1) ES = $1.100/year Implementation There is not a direct implementation cost. 98 .000/yr) x (0.Anticipated Savings Value of the batch = $11. it is important to realize that the recommendation deals only with one case of in-process inventory. the loss is: ES = (Inventory) x (Rate of Return) ES = ($11. Another benefit of this approach is that each piece is inspected individually and not as a part of a batch. an $11. If we consider a conservative rate of return for the company to be 10%. changes in layouts of the plant. which was the most obvious and did not require any investment. The requirement is just to change the routine of the operator. On the other hand if all steps of all operations are looked at and approached in a similar fashion. making rework necessary for just one piece instead of many. the savings generated will be significant. Simple Payback = Immediate Conclusion Although the savings are not too much in this case. should a problem occur. Therefore. the corrective action can be taken immediately..

The manufacture has not been able to meet the excessive demand for his product while operating only one shift. There will be extra management hired to supervise the operation on the second shift and additional security measures taken to deter internal theft.690/yr. At this point the mirrors are either framed or decorated by a variety of methods. The operation of a second shift will allow the company to decrease the cost per product which can increase the profit per product or allow the product to be sold by the company at a lower price to gain a larger share of the market.107 Simple Payback Period = less than one month Existing Practice and Observation Mirrors are purchased and shipped to the plant in crates with either a polished edge finish or raw edge finish.Assessment Recommendation No. 16 Add a Second Production Shift Assessment Recommendation Summary Estimated Cost Savings = $445. After production is complete the products are then packed and shipped directly to the customers. The majority of the manufacturing process consists of the decoration of the mirrors which has to be performed by hand. Estimated Implementation Cost = $9. The two main types of decoration that are used on the mirrors is silk screening and attaching pictures or designs to the back of the mirror. The manufacturing process begins by cutting the mirrors into the desired shapes and sizes. Recommended Action The recommended course of action is to add a second operating shift to the production in order to meet the excessive demand and maximize profits. The majority of workers are bussed in by the company from a neighboring city which as an abundant supply of men and women willing to work for minimum wages. 99 . This will allow the overall percentage of the non-production related expenses to decrease on a per mirror basis. The fixed cost that had is being absorbed by the production of only one shift will now be able to be split up between the to shifts. One concern of management was the ability to maintain an acceptable production rate on the second shift and avoid internal theft while management was not there to watch over the operation.

Anticipated Savings The annual total benefit from the extra profit.00. The night supervisor will be required to be supervise all the operations of the second shift and maintain an acceptable production rate. + $34. can be calculated as the amount of profit generated by a second shift minus the operating costs: ATS = (TAS x PVA x APP) . which includes the purchase and installation of a walk through metal detector.) ATS = $445.107. Payback Period = Implementation cost / ATS = $9.107 / $445.690/yr.450/yr. The security system will be monitored by one security guard. TAS = total annual sales PVA = percentage of value added to the product APP = annual percentage of profit ASC = annual cost of the night supervisor (including benefits) AGC = annual cost of the security guard (including benefits) Hence the additional profit will be.($59.(ASC + AGC) where. The total implementation cost will be $9.690/yr.860/yr. Only one system will be required at the main entrance because that is the only entrance the employees can use. Payback Period = 0. Implementation The implementation of this assessment will require the addition of a night supervisor to monitor the second shift and the installation of a security system. ATS = ( $13.02 years (less than one month) 100 . ATS. The security system will cost $9.107.5 million )( 40% )( 10% ) . The premium costs for labor on the second shift were neglected due the amount of available labor.

it may be possible to negotiate with material suppliers to provide their products in premeasured quantities. paying close attention to any in-house labor efforts associated with handling those materials. In this case. the bulk discount would have to be greater than the increased carrying costs incurred due to the requirement to house more raw materials at the manufacturing facility at one time. During the plant assessment. For the IAC program. the most likely recommendations related to purchasing will involve cases where extensive efforts handling purchased goods are observed. allowing a reduction of in-house labor. Questions to Ask • How often are raw material deliveries received? • Are raw materials delivered based on the supplier’s convenience or planned needs at your facility? • Inventoried quantities and values of raw materials? • How long do raw materials or purchased components remain at your facility before they are used? Symptoms/Indicators • Large amounts of time/labor spent mixing. if the usage volumes for a raw material are large but deliveries are small and frequent. it may be profitable to switch to a just-in-time delivery schedule. or unpackaging raw materials • Large volumes of raw materials or purchased components in inventory • Labor efforts spent transporting raw materials or purchased components (multiple transportations of raw materials and purchased components occur because purchased goods are not received Just-In-Time) 101 . negotiating delivery methods or schedules which will reduce the in-house costs.Purchasing Introduction Improvements in raw material and component purchasing procedures can lead to significantly reduced purchasing. it may be beneficial to purchase the materials in bulk to receive volume discounting. in-house material handling. In these cases. If existing delivery schedules require significant floor space and labor efforts for handling raw materials. raw material and purchased component inventories should be surveyed. If significant labor efforts are spent measuring materials. measuring. it may be possible for the IAC client to work with their suppliers. Finally. and inventory carrying costs.


When the storage pit becomes over-filled the trucks that are making the deliveries are unable to unload into the pit. This operation requires about 15 hours per week. The wood chips are then moved back into the pit by an operator with a front-end loader. requiring some of the chips to be removed from the pit. It takes the blower approximately 1. this is done three times a day. Estimated Payback Period = Immediate Payback Existing Practice and Observation The plant receives deliveries of wood chips by truck from the vendor according to the vendor’s schedule. creating backups in the delivery schedule.5 hours to remove enough wood chips from the storage pit when it is full. Savings on labor and energy costs will result. The storage shed can still be used as a buffer so if there are any problems with the shipments the extra wood chips could be used until the deliveries are resumed. 17 Schedule Wood Chip Deliveries According to Demand Assessment Recommendation Summary Estimated Cost Savings = $28. based on your company’s demand for wood chips. The wood chips are dumped into the storage pit until the cyclone is ready to pull them out of the pit and transport them into the factory for use in the process. If the level of the wood chips gets too low. The deliveries of wood chips are often made before the pit is able to accommodate them. Recommended Action Have the supplier deliver the wood chips according to a fixed schedule. The level of the wood chips must be kept within a certain range in order to insure that the trucks are able to unload the chips into the pit and the cyclone is able to transport the wood chips into the factory. This will eliminate the present need to have the wood chips moved from the storage pit to the storage shed and back to the storage pit. On average. the cyclone is unable to pull the chips out of the pit and production must be halted. This task is performed by a 90 hp blower which forces the chips up through a silo and into a storage shed. The chips are kept in the storage shed until the level in the pit is low enough.768 / yr.Assessment Recommendation No. 103 .

AES.690 / yr.078 / yr. + $4. Implementation and Simple Payback Since the supplier is heavily dependent on your business and can be persuaded to begin deliveries according to your schedule. ATS = $28.) MHS =$24. fringe) WPY = weeks per year of plant operation MHS = (15 hr/week) x ($31.5 hr/day) (360 days/yr.Anticipated Savings The savings from the reduction in man hours.078 / yr. needed to move the wood chips from the storage shed to the storage pit can be calculated using the following formula. ATS.05 / kWh) AES = $4. 104 . can be determined using the following equation. MHS. can be determined as follows: AES = HPR x AEL x HPC x HPD x DPY x CPH HPR = The horse power rating of the blower AEL = The average electric load on the motor HPC = The horse power conversion into kilo watts HPD = The average hours per day the blower operates DPY = days per year of plant operation CPH = cost of electricity usage AES = (90 hp) (. The payback will be immediate.690 / yr. The annual total savings.65 /hr) x ( 52 weeks/ yr.768 / yr.75) (. ATS = MHS + AES ATS = $24.) ($0. there will be no implementation cost for this recommendation.746 kw/hp) (4. MHS = HPW x CPO x WPY HPW = number of hours per week spent moving wood chips CPO = cost per hour of the person moving the chips (incl. The annual electricity savings.

The company estimates that approximately two percent of the raw materials are wasted in the combination of processes that are necessary before the materials are placed in the mixers. Spillage of the raw materials which occurs during measurement and transportation to the mixers will be eliminated.945/yr. Once the materials are separated into the proper amounts they are all combined in the mixers. The soluble packaging will dissolve once the reactions in the mixers begin to take place. MHS. 18 Purchase Materials from Supplier in Customized Packaging Assessment Recommendation Summary Estimated Cost savings = $24. allowing the pre-measured packages to be removed from the shipping containers and directly added into the mixers. can be determined using the following equation: MHS = (RMH + TSC x NOE) x AHR x DPY 105 .Assessment Recommendation No. Anticipated Savings The man hour savings. Estimated Payback Period = Immediate Existing Practice and Observation Your company presently receives materials from suppliers in standard amounts and divides the materials into useful quantities so the ingredients can be combined to form the right compounds for the process. This will eliminate the need to measure the raw materials in-house. There is a team devoted to processing the materials as they arrive and breaking down the packages so the materials can be measured out and sent to the mixers. Presently workers are given fifteen minutes to clean themselves off every time they are finished a shift or are taking a scheduled break. Labor costs will be reduced by eliminating the need to weigh out the materials into proper amounts. Recommended Action Require the suppliers to package the materials in immediately useful quantities and use soluble packaging. There are presently three employees working in receiving and a large percentage of their time is spent handling the raw materials. Additional time is spent cleaning the area that is used for measuring and transporting the materials. If the new type of packaging is implemented then the receiving labor requirements could be reduced to two employees. Savings of several types will result.

x (5% . the payback will be immediate. The annual total savings. 106 . no implementation costs will be associated with this recommendation. This will be slightly off-set by the 2% reduction in the amount of wasted materials achieved by using the customized packages. which must be considered with the cost savings.500 / yr.445 / yr.RMH = reduced man-hours per day TSC = time the employees are given to clean materials off per day NOE = number of employees who work with materials AHR = hourly rate for employees in receiving (including fringe) DPY = number of days per year the operation runs MHS = (8 hrs/day + 0. OCI.($43.450. Once implemented. Implementation Aside from the cost premium for the customized packaging. The net annual increase in the raw material cost will be: OCI = AMC x (PCP . will be: ATS = MHS .5 hrs/day x 2 employees) x ($29. There will be an annual increase in operating cost.) ATS = $24.445/yr.500 / yr. ATS.OCI ATS = ($68.000/yr.25/hr) x (260 day/yr.) .SWM) AMC = The total annual cost for raw materials PCP = The premium percentage paid for packaging SWM = The percentage savings of material wasted OCI = $1. A premium of 5% will need to be paid to the supplier in order to have the materials packaged as requested.945 / yr.2%) OCI = $43.) MHS = $68.

three hours are spent handling the gaylords.000 Simple Payback Period = 0. and will also reduce the warehousing costs associated with these raw materials. Gaylords are temporarily stored in the remote warehouse. then loaded into the material hoppers.ft. The gaylords are stacked 3 high and are at 16 sq. per skid. At the production facility. When using nine gaylords per day. Recommended Action The recommended action is to install an adjacent outdoor silo to store the polystyrene pellets. the gaylords are transported to the raw materials processing area by means of a forklift. per month. The company also leases a remote warehouse for storage of raw materials and finished goods. Approximately nine gaylords are used per day.000/yr plus 35% for fringes). This translates into about $14. The rent paid every year for this amount of warehouse space is $1. 1050 hours are spent in the handling of the gaylords.23/sq. allowing bulk delivery discounts to be obtained. There will only need to be one delivery to the silo every month.Assessment Recommendation No. aerated. and remove the contents of a gaylord. the company receives their raw polystyrene pellets in gaylords. It takes approximately twenty minutes to transport. 19 Install Polystyrene Pellet Storage Silo and Receive Bulk Delivery Discount Assessment Recommendation Summary Estimated Cost Savings = $175.50/hr (based on $20. 107 . open.082/yr Estimated Implementation Cost = $100.325. This will greatly reduce the present polystyrene purchase and handling costs.6 years (7 months) Existing Practice and Observation Currently.175 per year in labor costs. At any given time the company has about 90 gaylords stored in the warehouse. ft. Therefore. The total warehouse space needed is 480 sq. Anticipated Savings An average of nine gaylords are used per day.ft. assuming a labor rate of $13. The cost of the warehouse is $0. The company runs on a 350 day per year work cycle. then delivered to the production facility.

500/yr . Each gaylord is 1000 lbs.175/yr + $162. NJ 108 .. the savings in transportation were $13.OC = $177. Therefore. and at $0. to transport by way of tanker truck. or $100. Universal Dynamics Inc. Polystyrenics Div.418 per year. It is $0.. These operation costs (OC) would be subtracted from the cost savings..05 cheaper per lb. Operation cost for the silos will be approximately 10% of the previous labor cost.325/yr + $14.000 lbs..000 total. The cost for all parts. A silo this size can hold 100. and installation is $50. Net Cost Savings = CS .418 = $175. the cost savings per year (CS) can be estimated as: CS = WS + LC + TC where. or $1. This would mean that the company would receive only one delivery of material per month via tanker truck. WC = Warehouse Cost LC = Labor Cost TC = Transportation Cost CS = $1. high silos be installed.$2.000/yr CS = $177. About 270 gaylords were used per month. A nominal value of $1.000/yr is estimated for silo maintenance. 5 6 Monsato Corp.500/yr Implementation It is recommended that two 12 ft. of material.082/yr Therefore.000 per year.0006 per silo. the total cost savings will pay for the implementation costs in approximately 7 months.05 5 less per lb. diameter by 60 ft.There is also the added benefit of a lower price for the transportation via bulk tanker trucks as opposed to transport with gaylords as a medium.500 per month or $162.

a product is charged $3. • Factory overhead costs • General administrative and marketing costs • Profit In cost accounting the overhead is frequently everything mentioned above except direct labor and profit. and shipping.) . rentals. technical.000 less in direct labor cost than the other it will also involve $150. inspectors. crane operators.” we would like to know the fringe costs of labor. Keep in mind that the employer must match the employees contribution to social security and Medicare and may pay for vacation time.000 less indirect manufacturing expense. As rule of thumb we can estimate this to be about 40% if the company can't provide a better number. In order to properly judge the savings involved in "downsizing. • Utilities (heat. The selling price of a widget could be broken down into the sum of: • Direct cost of labor and material. clerical employees. retirement plans. This is why it is difficult to assign a truly accurate value of burden to each item produced. medical insurance. • Purchasing. etc. and management) and marketing. It does not follow that if one of two alternative new machines involves $50. e. insurance. if the burden rate is 300%. Some parts of overhead vary with production rates and some do not. etc. water. maintenance • Taxes. and depreciation • Administration(sales. profit sharing. A wide variety of items are included and could be made up of the sum of: • Salaries and wages of foremen. 109 . It is best for our purposes to keep the two separate and look for reductions of direct labor charges or indirect burden charges and calculate the savings separately. The most common are burden and overhead.g.00 for every dollar of direct labor cost. light.Burden Analysis Introduction Indirect expense of a manufacturing organization is called by various short names. The rate is usually predetermined by the accountants. receiving. etc.

or demolish dilapidated facilities) Symptoms/Indicators • Large unused areas on the factory floor • Using two nearby buildings • Empty or unused buildings on the property • Large equipment "graveyards" on the property Related ARs • REDUCE COST OF BUILDING PROPERTY • COMBINE FACILITIES INTO ONE AND ELIMINATE ASSOCIATED COSTS WITH THE BUILDING WHICH HAS BEEN ABANDONED • TEAR DOWN BUILDING ON PROPERTY TO REDUCE TAXES.) RENT OUT UNUSED SPACE B. INSURANCE. AND UTILITY COST • FREE UP SPACE IN BUILDING TO: A. as first reduction of energy consumption and more recently reduction of waste generation are direct reductions of burden. Questions to Ask • Is new construction planned? How much and why? • Do you manufacture or store goods in any other building nearby? • Would you be able or want to have a rent paying tenant occupying any portion of your building complex. • Do you place any value on equipment or facilities which seem to be "junk"? (If not.We have obviously been involved in calculating reductions in burden since the inception of the EADC program. Part of our increased agenda is to look at those parts of burden which we have hitherto ignored but which might very well constitute the difference between an organization making a profit and one headed for bankruptcy and shut down. it may be economic to scrap junk and use the freed space.) AVOID CONSTRUCTION COSTS 110 .

In addition it takes time to have products transported between locations. warehousing and. Recommended Action The recommended course of action is to create room in the main location and move the operations from the auxiliary building into the main building. This will relieve some of the burden on the company by eliminating the second building's expenses as well as save in the time that is lost in the commute between the two locations.497 Simple Payback Period = 0. Estimated Implementation Cost = $65. The main location houses the offices. There is a significant number of personnel that must commute between the two locations on an every day basis. fifteen minutes.697/yr. on average. Anticipated Benefits The total annual savings of rent. The locations are approximately three miles apart and the travel time between them is. some of manufacturing.Assessment Recommendation No. There is a significant amount of space in the main building that is being under-utilized and is believed to be able to be reorganized and moved to the main storage area. The auxiliary location is approximately one fourth the size of the main location and is only used for manufacturing. This area is mainly used to store excess inventory and out of date products. ARS = TAR x ARR where.000 ft2 building. will be the reduction in rent that the company will need to pay because of the termination of the 15.53 year (6 months) Existing Practice and Observation The daily operation of the company are divided into two stages that are performed in two separate manufacturing locations. ARS. There is a large portion of the main building that is not being used efficiently. 20 Condense Operation Into One Building Assessment Recommendation Summary Estimated Cost Savings = $123. 111 .

The annual savings of man hours.TAR = total area rented ARR = area rental rate hence the savings from rental is. AMS = TTC x NPC x HRC x TYC x DWY where.000 ft 2 x $5. AMS.25hrs/trip)(7 workers)($24. AST = CPT x TPD x DPY where.65 /hr)(2 trips/day)(312 days/year) AMS = $26.917 / year The annual trucking savings. ARS = 15. would be from the elimination of trucking costs that are presently necessary to transport the unfinished products from the main location to the second building and back again to the main location. ARS = $76. AST.10 /ft2 / yr. can be contributed to the elimination of the need to commute between the two locations is estimated as. AMS = (0.500 / yr. CPT = cost per trip for truck TPD = trips per day that are made DPY = days per year that trucks run 112 . TTC = time it takes to commute NPC = number of people that have to commute HRC = average hourly rate for the people commuting TYC = number of times a day to make trip DWY = number of days worked per year hence the savings from commuting is.

hence the savings from trucking are. Implementation The Implementation will require moving of all the essentials from the auxiliary building to the main building as well as the reorganization of the main building's storage areas. It should be noted that if the move is scheduled then it might be possible to have the employees take one week of their vacation during this period to avoid additional down time. are : ATS = ARS + AMS + AST ATS = ($76. ATS. The production will be shut down for one week in order to make the necessary movements from the auxiliary warehouse to the main warehouse.97/hr to produce an organization cost of $3697. There will be twenty-two pieces of machinery ranging from three tons to two hundred pounds that will need to be moved at a total cost of $17.00/trip)(1 trip/day)(312 days/ yr.53 years ( approx.500/yr.300.280/yr. There will be one hundred man-hours allotted at a rate of $36.) Payback Period = 0.) ATS = $123.) + ($26.497. AST = ($65. Payback Period = (implementation cost)/ ATS = ($65.) + ($20. A moving company will be contracted to move the operations from the auxiliary building to the main building.230. To reorganize the storage areas the use of in-house personnel will be utilized and will require overtime pay.917/yr. The lost production will cost approximately one week of the total annual sales which amounts to $44.280 / yr. six months) 113 .) AST = $20.697/yr. The annual total savings.697/yr. The total implementation cost for the recommendation will be $65.497 ) / ($123. There will also be a production down time that needs to be accounted for.

The additions were made to the original plant to accommodate expanded production and increase the available storage space. There is one building that is no longer of any real use and is at the point were repairs will cost more than the building is worth. The construction quality of the additions is not that of the main building and in recent years some of the additions have been neglected due to their diminishing requirements. AST = TPA x TAD where.Assessment Recommendation No.2 years (26 months) Existing Practice and Observation The company has several buildings that have been constructed since the original factory was established. 131996 Comparative Statistics of Industrail and Office Real Estate Markets. Washington.C. 21 Demolish Building to Reduce Tax & Insurance Fees Assessment Recommendation Summary Estimated Cost Savings = $54.000 Simple Payback Period = 2.600/yr Estimated Implementation = $118. Anticipated Savings The annual savings from the elimination of the taxes. In demolishing the building the annual taxes and insurance for the building will be eliminated. TPA = The tax rate per area13 TAD = The total area being demolished Hence the savings from taxes are. D. Recommended Action The recommended action is to demolish the 1948 warehouse and move anything of value to either of the adjacent warehouses that are at less than maximum capacity. AST.Society of Industrial and Office Realors. The building is assessed as a development property and the last reassessment was performed before the building began to deteriorate. 114 . for the building that will be demolished can be determined using.

360. this is the amount of insurance that is being paid to keep fire and liability insurance on the building. is the savings per year from the demolition of the building and is comprised of the savings from taxes and the savings from insurance. ATS = AST + AIS ATS = ( $51. $0. IRA = The insurance rate per square foot14 TAD = The total area being demolished Hence the savings from the insurance is. AIS.000 per year The annual total savings. ATS.000 ft2 ) AIS = $3.600 / yr Implementation The implementation requires demolishing the warehouse.10 / ft2 /yr. R. Any salvage value of material will be incorporated into the cost of the disposal of the material. It can be determined using.000. The disposal of the material consists of dump charges that is determined by the type of material and the volume (cubic yards) being disposed. It is estimated that there will 14Based on information obtained from Comparative Statistics of Industrail and Office Real Estate Markets Repair and Remodeling Cost Data 15th Annual Edition. the demolition of the building will cost approximately $90.AST = ($1. and the cost for the type of building (steel framed). Kingston. ) x ( 30.S.600 / yr ) + ( $3000 / yr ) ATS = $54. AIS = IRA x TAD where.) x ( 30.21 ft3 . The demolition also includes the loading and hauling of the rubbish hence.600 / yr. and removal and disposal of the construction materials.000 ft 3 .72 /ft2 /yr. The annual savings from the insurance. The demolition costs are determined by the volume of the building.000 ft2 ) AST = $51. MA 15Means 115 . Construction Company. AIS = ( $0. 15.

000 ) / ( $54.600/yr ) Payback Period = 2.000.000 resulting in an implementation cost of $118.2 years ( 26 months) 16Based on information obtianed from the Means repair and remodeling cost data 116 .00 per cubic 800 yd3 of material that needs to be dumped at a rate of $35. Payback Period = Implementation cost / ATS = ( $118. The total dump charges will be $28.

This is in contrast to many traditional American and European production systems which have viewed inventory as a necessary evil. process-related problems which should be investigated further (listed above). Once the root cause for excess inventories is identified and addressed. 117 . needed to compensate for deficiencies in the manufacturing process such as: • Long set-up times • Frequent machine breakdowns • Lack of predictive/preventive maintenance • Excessive manufacturing lead times (due to process bottle-necks or poor process layout) • Defective raw materials or purchased components The most important reason to consider inventory levels may be for use as an indicator of other. For this reason. In fact. it is desirable to minimize inventories of all types. the most notable of which are: • Investment costs (time value of money tied up in inventoried goods) • Cost of product damage or spoilage • Cost of product obsolescence • Cost of storage space • Handling & transportation (in-house) Although the magnitudes of each of the above costs may vary from one manufacturer to the next.Inventory Introduction There are four major types of inventory in industrial facilities: • Raw materials • Purchased components • Work-in-progress • Finished goods Associated with each of the above types of inventoried goods are carrying costs . The Japanese believe that inventory is one of the greatest forms of waste and make every effort to achieve production systems which don’t require it. if inventoried periods are long enough. the carrying costs can exceed the profits gained from the eventual sale of the products and a net loss will result. it is easy to recognize that each of the costs will continue to grow in time.

finished goods inventories can be nearly eliminated by using a Just-In-Time production system--scheduling production lots based on the immediately required orders. To be economical. In many cases. and ii) reduced inventory carrying costs. Such investigations may lead to 118 .reducing inventory carrying costs may be shown as a secondary benefit for solving the original problem. Large-scale manufacturers have the power to dictate just-in-time deliveries by their suppliers and the resources to realistically consider continuous processing methods and just-in-time manufacturing. the annual savings could consist of: i) reduced production downtime. ii) to have zero in-process inventory. This may result in the storage of large supplies of finished goods to ensure timely deliveries and customer satisfaction. seasonality of production. medium-sized manufacturers served through the IAC program. manufacturers served by the IAC program will be on the “receiving end” of just-in-time mandates and will be required to provide just-in-time deliveries to their customers. product variety. For most of the small. the ideal inventory situation is: i) to stock only the raw materials and purchased components which are immediately needed. the principals and importance of inventory reduction should be recognized and pursued in all practical opportunities. product type. the reasons for the manufacturer’s perceived need for large inventories should be investigated. For example. many factors (production volumes. Where inventory levels are found to be excessive. very large raw material volumes are normally required (to minimize transportation costs) and suppliers must be able to reliably deliver all needed materials upon short notice (or raw material needs must be well known in advance of the delivery date). where the product flows continuously from one process to the next until completion. supplier scheduling. this will be an unattainable goal because they may lack the buying power and production volumes necessary to achieve such a system. Obviously. etc. and iii) to only produce finished goods in the amount that they are immediately needed. Zero (or minimized) in-process inventories may be achieved through the use of continuous processing systems. Even though the size of the manufacturers served by the IAC program may limit the extent to which inventories can be realistically reduced. In terms of minimizing inventory carrying costs. order lead time. Minimal raw material inventories are achieved by requiring material suppliers to provide Just-In-Time deliveries. if long set-up times are identified as the cause of large finished-goods inventories in a manufacturing facility and a recommendation is made which will reduce the set-up times significantly.) aside from inventory levels affect the practicality of all three of the above mentioned concepts.

119 .recommendations to: reduce process bottlenecks. in-process products. etc. etc. reducing/eliminating process bottlenecks. shorten set-up times. modify floor layouts to reduce production lead times. buy new equipment. Questions to Ask • Average value and quantity of each type of inventory (raw materials. finished goods)? • How much floor space is used for each type of inventory? What is the assigned value (if any) of that floor space ($/ft2/yr)? • If it is determined that there is excess inventory of some type. purchased components. reducing overproduction. develop standardized procedures. improving maintenance practices. what are the present average manufacturing lead times for the products whose inefficient production requires the maintaining of excess inventory? Symptoms/Indicators • Physical observation of large inventories • Long set-up times • Frequent equipment downtime • High defect rates • Lack of a preventive maintenance program Related ARs • MINIMIZE INVENTORY TO REDUCE INVENTORY CARRYING COSTS • MINIMIZE INVENTORY AND OVERPRODUCTION TO REDUCE INVENTORY “SPOILAGE” • REGAIN PARTIAL VALUE OF INVENTORY BY RECYCLING OR SELLING AS SCRAP NOTE: Inventory reductions and the resulting reduced carrying costs should be considered as a secondary benefit achieved by reducing set-up times or machine breakdowns. why is that excess inventory needed? • If excess inventories are needed because of some process-related inefficiency or problem. improve maintenance or establish predictive maintenance procedures. improving floor layout.

114/yr Total Estimated Continued Cost Savings = $23. According to our observations and conversations with facility personnel.Assessment Recommendation No. It is estimated that your company has the equivalent of one month's production in stock.593 MMBtu Estimated Energy Cost Savings = $5. damaged. however.4 years (5 months) Existing Practice and Observation During our assessment. 22 Eliminate Old Stock and Modify Inventory Control Assessment Recommendation Summary One-time Savings: Estimated Energy Usage Savings = 1.027 Continued Savings: Capital Investment Savings = $2. or has become misplaced due to improper packaging which occurred when batch quantities were over-produced. damaged.854/yr Cost Benefit from Reclaimed Floor Space = $21. glassware is often produced in lots much larger than the existing order with the hope that the customer will order another shipment of the same product in the future.640 Simple Payback Period = 0. it was noticed that a large amount of the existing inventory is very old. Often.459. all of the products are not sold. Due to the long production line set-up times.” Much of this stock appears to have been grouped together when the newer inventory system was 120 . Since there has been no established procedure for purging the inventory of out-of-date products. these items have accumulated over the years and now occupy a significant amount of warehousing space.838 lb. or has been damaged. Boxes containing products as old as 8 years were found.284 Total Estimated One-time Cost Savings = $19. Interviews with plant management revealed that a significant percentage of the existing inventory is not sellable because it is either out-of-date. about one-quarter of the finished goods in the warehouse are out-of-date.743 Estimated Raw Material Savings = 1. Estimated Raw Material Cost Savings = $13. or otherwise “spoiled.968/yr Estimated Implementation Cost = $9.

= out dated stock = good stock AR#22. Figure #1: Outdated Inventory in Newer Warehouse 121 .

leaving out-of-date inventory in entire rows or especially at the back end of rows. 18 17 18 National Cleaner Production Database Office of Technology Assessment. or otherwise “spoiled” inventory.500 lb. Once the glassware becomes out-dated.702.000 ft2 of cleared floor space which should be either: 1) leased to an outside organization to provide a new source of revenue. 1989. Using cullet to produce glass allows the avoided use of new raw materials. We estimate that one-quarter of the existing inventory is out-of-date and could be used as cullet. or 2) used to offset a portion of the construction costs for planned expansions.)/12 = 5.implemented. The previous actions will result in approximately 9.851 tons) x (2000 lb. resulting in a cost savings on raw material purchases--it requires 10% more virgin raw materials (by weight) to produce a pound of glass as compared to re-melting cullet. Recommended Action Reduce inventory by immediately re-stocking or disposing of old. Currently. because it requires less heat to melt cullet than it does to make glass from virgin raw materials.200 BTU per pound of glass produced is conserved by using cullet instead of raw materials. damaged.308. 17 In addition. it should be used as cullet (clear glass) or sold as scrap (colored glass). Only inventory to be shipped is pulled from rows. Facing America's Trash: What Next for Municipal Solid Waste 122 .000 lb. inventory is tagged with customer and date and inventoried in "rows" in the warehouse. energy savings will also result--about 1./ton)]/12 = (63. Figure 1). A procedure should be established to identify inventoried products which have become out-dated and have no chance of being sold. but some is also in the newer warehouse (shown in AR#22. and instituting new accounting methods for the inventory in the newer warehouse. Anticipated Savings The existing inventory is estimated as the equivalent of one month’s production: Existing Inventory = (Annual Production) / (12) = [(31.

500 lb. x 0.838 lb. the total one-time cost savings achieved by purging your inventory of out-of-date stock and using it as cullet would be: Total One-time Savings = Raw Material Cost Savings + Energy Cost Savings Total One-time Savings = $13. .838 lb. raw mat’ls/lb.327.898 15% lime = 1.02/MMBtu) Energy Cost Savings = ($3.284 + $5. . x 0..593 MMBtu) x (0.459. + (Energy Savings) x (% Electric) x (Cost of Electricity Usage) = (1.The amount of cullet obtained from out-of-date inventory is estimated as one-quarter of the existing stock.75 x $12. x 0.838 lb. 123 . . .743 = $19. or 5.155) Energy Cost Savings = $5.125 lb.459. .00/ton x 1 ton/2000 lb = $1.593 MMBtu) x (0.15) x ($9.00/ton x 1 ton/2000 lb = $4.1 lb.308.327. .588) + ($2.423 10% soda ash = 1.027 The above savings is thought of as a one-time savings because improved inventory methods will prevent future build-ups of out-of-date inventories.593 MMBtu Since about 15% of the heat for the furnaces is electric heat and 85% is from natural gas.125 lb.60/ton x 1 ton/2000 lb = $6.85) x ($2. . the energy cost savings would be: Energy Cost Savings = (Energy Savings) x (% Gas Heat) x (Cost of Gas) + .284 The energy savings would be: Energy Savings = (1.838 lb. .459. . cullet) x (1. The corresponding cost savings would be: 75% sand = 1. resulting in a raw material savings of: (1.459.743 Hence.) x (10-6 MMBtu/Btu) Energy Savings = 1.10 x $68.378/yr.027)/(8 years) = $2. + (1. . / 4 = 1. If one assumes that the existing out-of-date inventories were built up over a period of 8 years.65/MMBtu) + . cullet) = 1.15 x $13. then the estimated annual savings achieved by re-cycling out-of-date glassware would be about ($19.963 Total Reduction in Raw Material Cost (RM) = $13.125 lb.) x (1200 Btu/lb.327.

027) x (0. this capital would be worth (assuming a rate of return of 15%/yr): Reclaimed Capital Earnings = (Value of Out-of-Date Inventory) x (15%/yr) = (Raw Material Cost Savings + Energy Cost Savings) x (15%/yr) = ($13. this space has a revenue producing potential of (9.15/yr) = ($19.75/ft2/yr) = $33.530/yr Administrative Costs = 2 hr/wk x 52 wk/yr x ($15. gross lease prices in your company’s geographical area for warehousing spaces in the range of 5.106/yr Total Costs = $12.284 + $5. nor would there be any municipal tax consequences. According to statistics published by the Society of Industrial and Office Realtors19. Using a leasing value of $3. 19 1996 Comparative Statistics of Industrial and Office Real Estate Markets.75/ft2/yr.750/yr .15/yr) Reclaimed Capital Earnings = $2. etc.C.While sitting in inventory. however.000 ft2 in size are in the range of $3. D.854/yr The warehousing space used to store out-of-date goods is essentially wasted space at the present time.) to perform the functions of the rental venture. In this light. Society of Industrial and Office Realtors. If invested elsewhere in the company. Although this space may be viewed as having no value (because it is owned by the company). It is not necessary to insure other client’s property..743) x (0.000 to 20. shipping clerk.46. the space does have tangible value and should be considered as a significant benefit which will result from implementing this recommendation.25-$4.00/hr + 35% fringe) = $10. 124 .636/yr = $21.636/yr NOTE: The above costs may not be as high if the space is leased for non-warehousing purposes. Labor = 10 hr/week x 52 weeks/yr x ($15.750/yr.114/yr. there would probably be a one-time facility renovation cost in that case.$12. the value of the out-of-date products can be viewed as “idle” capital. the net earnings would be $33. such as expanded production operations or as leasable space.000 ft2) x ($3. p. purging the out-of-date glassware will make the space available for other uses. Subtracting the annual operating costs for maintaining this space as a warehouse (shown below).00/hr + 35% fringe) = $2.50/ft2/yr and are in moderate shortage. Washington. Operating Cost It is estimated that it would require an additional 10 hours/week of manpower (warehouse person.

00/hr + 35%) for 80 hours = $3240 2 outside hires @ $40.968/yr) = 0. if job rules and available personnel allow.640 Simple Payback* = $9. labor = 2 inside people @ ($15. An alternative scheme would be to use present personnel.027.4 years (5 months) * NOTE: The above payback calculation neglects the one-time SAVINGS of $19.00/hr for 80 hours = $6400 Total labor = $9. 125 .Implementation Costs The cost to implement this recommendation include: 1) clean-up of old inventory 2) modification of your present inventory system to identify out-of-date goods 3) preparing the reclaimed space for rental purposes Cost to clear the area is estimated as using existing personnel and hiring outside help for two weeks.640 / ($23.

126 .

since equipment changeover is time consuming. 127 . produce small quantities of specialized and customized products. particularly if it does not have a direct cost. The other type of small production uses a cell layout. paint booths in another. and minimizes handling by reducing lead time. If the product varieties are few. This is characterized by longer production runs. the product can be produced in batches. Typically. The facility is laid out in departments. frequently repeated. or non-value added operations. space. Most manufacturers did not design the layout you see today. usually on conveyors. This economizes on the amount of inprocess inventory. inventory or labor. One example of modifying a floor layout to reduce in-process inventory involved a manufacturer of plastic parts that moved batches of 10.Floor Layout Introduction Opportunities in modifying floor layout involve saving time. or changing sizes. The equipment is general purpose. While this layout allows for flexibility. Many factories will be a mixture of these three types of layouts. or job shops. even constructing or leasing new buildings rather than maximizing the existing floor layout. the disadvantage is much moving and handling. This strategy is used when there is a lot of variety in the product and/or the demand is unpredictable. and by the quantity produced. and the work force skilled. they do not assign any value to wasted space. but rather they "grew" into it. where equipment is consolidated by type. The product is routed through departments in the order of the process required. Equipment is somewhat specialized. High quantity production is generally set up in flow line layout. A common practice by plant management over the years has been to expand into all available space. Workstations are arranged to manufacture a "family" of products simply by adding or eliminating steps. and the workstations and workers located next to the line. One type of small quantity layout is process oriented. with the products moving through the factory. lathes are in one area.000 parts at a time to the printing area. Low quantity producers. Equipment is designed so that similar products can be made (or assembled) on the same machinery without significant modification to the machines. Floor layouts will vary depending on the number of different products made. This is accomplished by eliminating or reducing wasted motion. and the demand is predictable. and orders are usually made to replenish inventory. The final products or assemblies are often made to order.

This layout modification also eliminated the expense of movement by forklift. SHIPPING) TO REDUCE TRANSPORTATION TIME • VERTICALLY WAREHOUSE THE FINISHED PRODUCT (OR USE ROBOTICS) TO REDUCE TRANSPORTATION AND/OR MAXIMIZE FLOOR SPACE • INSTALL DISTRIBUTION SYSTEM TO MOVE RAW MATERIALS (OR WASTE) TO REDUCE TIME ASSOCIATED WITH INDIVIDUAL PICK-UP AREAS • DISTRIBUTE UTILITIES (AIR. ELECTRICITY) TO REDUCE TIME SPENT MOVING PRODUCT OR TOOLS • CLEAR EQUIPMENT GRAVEYARD TO MAKE USEFUL SPACE • CONSOLIDATE PRODUCTION AREA TO CREATE WAREHOUSE SPACE 128 . It was possible to move the extruder next to the printer. in-process. reducing the lead time to less than 5 to one. Questions to Ask • Do you rent. a manufacturing lead time of 10.Printing took only one minute. WATER. lease or own the facility (or another)? (cost $/ft2 /yr) • Do you have any plans for expansion? • How do you account for the cost of space? (cost $/ft2 /yr) • How many different products do you make? • What is the lead time of the product/process? Indicators / Symptoms • Excess Inventory (raw material.000 to one. finished goods) • Unnecessary motion • Excessive transportation within the plant • Duplication (two conveyors where one would do) Related ARs • MODIFY EQUIPMENT LAYOUT TO REDUCE MOTION OR TRANSPORTATION • RELOCATE DEPARTMENT (REPAIR SHOP.

Presently it is insured and annual taxes are paid on the original assessed value of the building. A large portion of the machinery in the warehouse is no longer worth repairing and is considered unsalvageable. 23 Clear and Rent an Existing Warehouse Assessment Recommendation Summary Estimated Cost Savings = $125. Using a leasing value of $4..C.400 ft2) x ($4. There is ample room in other warehouses to store the machinery and materials that are still valuable to the company. Estimated Implementation Cost = $38. It is believed. 20 1996 Comparative Statistics of Industrial and Office Real Estate Markets.46.75/ft2/yr) = $125.00-$5. this space has a revenue producing potential of (26. separating all machinery or materials that are salvageable and moving them to other warehouses.000 to 60.50/ft2/yr and are in moderate shortage.400 ft2 of usable space and a private entrance.000 Simple Payback Period = 0.75/ft2/yr.3 years (4 months) Existing Practice and Observation Warehouse #3 is presently being used for the storage of out-of-date machinery and unusable material.400/yr. p.Assessment Recommendation No. D. gross lease prices in your company’s geographical area for warehousing spaces in the range of 20. The warehouse has approximately 26. These are costs that your company is absorbing and little to no benefits are received. It is important that a large portion of what is presently in the warehouse be permanently disposed of in order to avoid this problem from occurring in another place. by management.400/yr. The rest of the equipment and materials that have no value can be hauled to the dump. that more than three-quarters of the objects that are presently being stored in the warehouse are of no future use. Society of Industrial and Office Realtors. Washington. Recommended Action Clear warehouse #3 and rent it to an outside organization. Anticipated Benefits According to statistics published by the Society of Industrial and Office Realtors20. 129 .000 ft2 in size are in the range of $4.

)] = $250 The total implementation costs will be $38.000) / ($125. MA. Means Construction Company.400 /yr. Assuming the worst price to allow for improvements. the 5 tons of scrap will return: (5 tons) x (2000 lb/ton) x [($2.000. The simple payback period can be calculated with the following equation: Payback Period = (Implementation Cost) / ACS = ($38. 130 .250. The price that is paid for the metal varies from $2. This will result in a total disposal cost of $76. It is estimated that 500 yd3 of rubbish will need to be removed. R.50 per yd3 of rubbish21.S.50 per yd3 of rubbish while the dump charge will be $30 per yd3 at the trash facility.50 /100 lb.3 years (4 months) 21Means Repair and Remodeling Cost Data 15th Annual Edition. Kingston. resulting in a total removal cost of $38.Implementation Implementation requires the removal of the unusable materials and salvage of the scrap machines. and dumped at the nearest trash site.00 per one hundred pounds and mainly depends on the condition and type of metal.50 to $4. The savings for salvaged scrap metal is the amount of money that can be collected from the salvage of the machinery in the warehouse. The loading and hauling will cost $46. The rubbish will have to be loaded.) Payback Period = 0. hauled.

Recommended Action Re-arrange the production equipment as shown in Figure 2. Since these machines are presently located at least 50 feet apart.Assessment Recommendation No. The automated machines can package cups from two production lines at once and are used where the same product is manufactured on two adjacent lines. aside from the packing machines the only difference between production lines for different products are the molds and the process set-up (timing. . A full product changeover.000/yr Estimated Implementation Cost = $5. This will allow one operator (instead of two) to monitor both machines.). This will require four complete production line changeovers and the movement and setup of one automatic packing machine and two manual packers. including the process set-up. spending well over half of their time waiting for something to do.038 Simple Payback Period = less than one month Existing Practice and Observation Part of the existing floor layout is shown in Figure 1. 131 . one operator is used for each type of packing machine and there are four production shifts per week. Both manual and automated packing machines are used to package finished products (cups). two operators are required. where the ordered volume of cups doesn’t merit the use of two simultaneous production lines. 24 Re-arrange Equipment Layout to Reduce Labor Costs Assessment Recommendation Summary Estimated Cost Savings = $135. placing the two automatic packaging machines side by side. takes approximately 6 hours (on average). According to management. Presently. etc. The operators on the two automatic packing machines were observed to be underutilized. The manual machines are only capable of packaging product from one line at a time and are used on the lower volume cup lines..

C.C.C. Automated Packer Q. Finished Goods Molds Molds Unscrambler Unscrambler Q. Manual Packer Manual Packer Finished Goods Finished Goods Figure 2: Proposed Process Flow / Floor Layout 132 .C. Automated Packer Q. Automated Packer Q.C.Molds Molds Unscrambler Unscrambler Q. >50% idle time Finished Goods Figure 1: Existing Process Flow / Floor Layout Molds Molds Unscrambler Unscrambler Q.C.C. Manual Packer Manual Packer Finished Goods Finished Goods Molds Molds Unscrambler Unscrambler Q.C. Q.C. Q.C. >50% idle time Finished Goods Molds Molds Unscrambler Unscrambler Q.C. One Worker Can Manage Both Machines Finished Goods Molds Molds Unscrambler Unscrambler Q.C. Automated Packer Q.

038 / ($135.47/hr) x (6 hr/chg.000/yr) = less than one month Note: Labor values taken from Means Repair & Remodeling Cost Data.Anticipated Savings The equipment re-arrangement will reduce the labor requirements for the packaging operation by one person per shift for 4 shifts: Cost Savings = (1 operator/shift) x (4 shifts) x ($25. 15th Annual Edition. fringe) 6 hours/changeover 4 changeovers are required (4) x ($19. fringe) = $1. @ $27.75/hr incl.869 Plant Foreman (5 days) (@ $33.50/hr $440 Moving Equipment / Operators (1 day) Laborers 2 @ $32.350 Trades Electrician 16 hr.35 fringe) Cost Savings = $135.00/hr $512 Hydraulic Crane (25 ton) @ $541/day $541 Equipment Operator (Crane) @ $40.47/hr incl.) x (4 chg.) = $1. 133 .000/yr/operator) x (1.75/hr $326 Total Implementation Cost $5.038 Simple Payback = $5.000/yr Implementation Implementation of this recommendation will require: In-house Labor 4 technicians/changeover (@ $19.

056/yr Estimated Additional Income = $44. The product is then pelletized. mixed. packaged and moved to shipping.790/yr Estimated Implementation Cost = $6343 Simple Payback Period = 2 months Existing Practice and Observation The process of manufacturing cereal feeds is divided into two lines each running in the same direction in the facility.Assessment Recommendation No. ground. and loaded into bins. In the first line. dried. extruded. where other ingredients such as minerals and vitamins are added. 25 Re-arrange Equipment Layout to Reduce Handling Costs Assessment Recommendation Summary Estimated Cost Savings = $4. cooked with steam and starches. These bins are then moved by forklift truck to the beginning of the second line. pelletizers drying cooling packaging and shipping move product by forklift mill extruder weigh hoppers silo silos Figure 1: Existing Process Flow / Floor Layout 134 . milled. the grains are weighed.

Re-arrangement of the equipment will save: 5 min.056/yr Increased Production =(7200 tons/yr) / (2000 hrs/yr) x 208 hrs/yr = 749 tons/yr Increased Sales = 749 tons/yr x $598/ton = $447.902/yr @ 10% profit = $44.790/yr Total = $48. x 1 hr/60 min.896/yr 135 .00/hr) x (1. eliminating the need to move the product by fork-lift. x 10 times/day x 250 days/yr = 208 hrs/yr Labor Saved = (208 hrs/yr) x ($15. Since your company has a planned shutdown for one week. packaging and shipping pelletizers cooling drying mill extruder weigh hoppers silo silos Figure 2: Proposed Process Flow / Floor Layout Anticipated Savings The product is moved 10 times each day (one shift). little or no inconvenience will be caused by moving the location of the shipping operations. Since there are loading doors on both ends of the facility.Recommended Action Re-arrange the production equipment into a continuous line and install a conveyor system to deliver in-process materials from the weigh hoppers to the dryer. Each movement of the product takes 5 minutes.30 fringe) = $4. it is recommended that this move be made during that time.

000 Trades Electrician 16 hr.60/hr $1. @ $27.30/hr $453 Laborers (40 hr) Skilled 2 @ $24.536 Hydraulic Crane (25 ton) @ $541/day $1.740 Simple Payback = $70.300 Trash Removal Construction 10 yd3 @ $35.50/hr fringe) $1. 136 .972 Helpers 2 @ 18.Implementation Implementation of this recommendation will require : Conveyor System (installed) $60.65/hr $1.45 yrs (approx. 17 months) Note: Labor values taken from Means Repair & Remodeling Cost Data.896/yr = 1. @ $28.00/yd 3 = $600 Moving Equipment / Operators Laborers 2 @ $32.00/hr $1.75/hr $978 Total Implementation Cost $70.488 Plant Foreman @ ($25/hr + $7.00/yd 3 = $350 Rubbish 20 yd3 @ $30.623 Equipment Operator (Crane) @ $40.50/hr $440 Plumber 16 hr. 15th Annual Edition.740 / $48.

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